Much of what happened in the first quarter of 2025 is inconsequential given what happened in the days following the end of the quarter, which we will touch on later as it would be remiss of us not to.
For those of you interested in the data or have forgotten what happened before the last week, most equity regions posted positive returns in the first quarter of 2025, with only the US and Japan failing to do so. Chinese stocks had a strong Q1, helped by the development of Deepseek AI which shook up the tech community as well as, ironically, US tariffs not being as bad as feared at the time. German companies also had a very good first quarter as markets re rated their growth prospects following central bank stimulus.
Despite the upcoming tax rises on business in the UK the FTSE performed well, outperforming most regions.
The major detractor over the quarter was the US, as market hopes of a Trump boost owing to deregulation and cutting taxes quickly gave way to concern about his use of tariffs. Trump had always threatened this, and markets never quite believed he would go ahead quite like he has done, partly down to his actions during his first term and partly because the policy is non-sensical.
It started with tariffs on China, Canada and Mexico – these were seemingly changing everyday. Sometimes they were on, sometimes off, sometimes with exemptions and sometimes without exemptions. Markets edged lower while this was ongoing as Trump threatened a wider set of tariffs on the rest of the world, dubbed ‘Liberation Day’ which he set for 2nd April. When ‘Liberation Day’ occurred, the tariffs were much worse than the market expected. Only a few countries were spared (Russia being one) while even the penguins on the Heard and McDonald Islands were slapped with a 10% tariff.
The White House published a complicated looking formula as justification for the tariffs but all it ended up doing was dividing the US goods deficit by the imports and dividing by 2. Trump thinks that if the US buys more goods than you buy off them, the US is being taken advantage of. This is clearly nonsense – some of the countries hardest hit such as Lesotho (50%) and Madagascar (47%) have deficits because they sell things the US want (diamonds & vanilla) and can’t make (has anyone asked Trump where his vanilla farm is going in the US?), but also because the citizens of these countries cannot afford US made goods.
Markets quickly went into freefall as global recession becomes an increasing possibility if tariffs are maintained at this level. Volatility is continuing as the markets try to judge whether these tariffs are here to stay or if they can be negotiated away. On 7th April, markets shot up around 10% in a couple of minutes as rumor spread that Trump was considering a 90 day pause. This turned out to be ‘Fake News’ (as the White House put it) and markets retreated but it shows how quickly sentiment can change and the importance of staying invested.
Events like this cannot be predicted and it is in times like these you must remember you have a financial plan. The best thing you can do is to do nothing other than stick to this as history has shown you will be OK. If not, you probably have bigger problems to worry about than the value of your investment portfolio.
These are some of the economic conditions that we test all of our clients’ wealth projections against:
