Market Updates

Global equities fell, with US equities dragging other markets down despite gains elsewhere. Bond markets saw yields more-or-less steady as a more dovish tone from central banks was balanced by concerns over economic growth. Towards the end of the period, US President Donald Trump indicated that he intended to put high tariffs onto imported goods in America, casting a shadow over potential market returns for the coming months.

Global equities fell over the first quarter of 2025. US equities fell sharply, dragging down global returns due to the size of the US market. Elsewhere, however, returns were broadly positive, including the UK and Europe. China was strongly positive, boosting returns from emerging markets overall, while Japanese equities were negative.

The fall in US equities was driven mainly by the technology sector. This was because of the announcement in February of the Chinese AI system Deepseek, which created similar results to established US systems like Chat GPT, for a lower operational cost. AI has been at the centre of investor enthusiasm for the big US tech stocks in recent years, driving market performance. The announcement of Deepseek led investors to reducing their holdings in the big US tech stocks, dragging down the overall market.

As investors reduced their holdings in the US, however, they started looking for opportunities elsewhere. This helped drive positive returns in other markets.

China was the main beneficiary, seeing strong positive growth in January and February. However, the announcement of tariffs against China by the US in the middle of March saw investor enthusiasm wane slightly.

European equities also saw a positive return. UK equities were also positive, although gains were limited by a stronger pound and weaker performance in commodity-linked sectors. Mid-cap stocks saw a greater return than larger companies, reflecting improving domestic sentiment and signs of stabilisation in consumer spending.

In fixed income markets, US Treasury yields were somewhat volatile, but the general trajectory was down (meaning bond prices rose) as the US Federal reserve indicated that the rate cuts were likely later in the year. Falling rates make currently issued bonds more attractive to investors as new bonds that are issued will have a lower interest rate, meaning they pay out a lower income. UK gilt yields were more volatile, falling into February on the expectation of lower rates, but then rising in the second half of the quarter as economic uncertainty rose and UK investors sought the lower risk of bonds.