2nd Quarter 2025 Market update

I hope that this update finds you well and you are enjoying summer, while it lasts. 

The past three months were a bit of a rollercoaster for markets, with early jitters over US trade tariffs giving way to calmer waters as many of the proposed measures were put on hold. Shares generally rose across the globe, helped by healthy corporate earnings and improving sentiment. Bonds were steadier, though debt concerns began to attract more attention. Commodities were mixed as a whole. 

Global Shares

World markets had a shaky start after President Trump’s “Liberation Day” tariffs announcement, but the pause in most tariffs and progress on trade talks led to a recovery.

US

US markets gained, with technology and communications at the forefront, helped by renewed interest in the “Magnificent 7” and AI-related companies. First-quarter earnings were generally strong. Healthcare and energy lagged, partly due to political pressure on drug prices.

The economy remained broadly resilient despite a small GDP dip. Employment held up well, and new tax and spending plans passed in June extended earlier tax cuts and boosted defence spending.

Europe

European shares rose strongly, led by industrials and real estate. Defence companies benefited from a NATO agreement to raise spending. The European Central Bank cut interest rates twice, signalling the cycle was nearly done, while inflation edged down.

UK

The FTSE All-Share moved higher, with industrials, telecoms, utilities, and real estate in the lead. Energy and healthcare underperformed. Mid-sized companies outshone their larger peers.

The Bank of England cut rates to 4.25% in May, but inflation at 3.4% remained above target.

Japan

Japanese shares surged, with growth stocks driving gains. Tariff worries faded as trade talks progressed, and ongoing corporate reforms led to more generous dividends and share buybacks.

Emerging Markets

Emerging markets outpaced developed markets, helped by a weaker US dollar. Korea and Taiwan shone, while Brazil also did well. India lagged, and China delivered only modest gains.

Asia (ex Japan)

Korea, Taiwan, and Hong Kong topped the charts, while China and Thailand underperformed. A stronger Taiwanese dollar reflected optimism in the export sector.

Bonds

Geopolitical tensions and debt sustainability concerns shaped bond markets. After tariff worries eased, US fiscal issues took centre stage. Central banks mostly held or trimmed rates modestly.

High-yield bonds outperformed higher-grade bonds, despite greater volatility, and longer-term yields rose globally.

Commodities

Overall, commodities slipped. Oil spiked briefly on Middle East tensions before retreating on oversupply concerns. Cocoa prices surged, while precious metals attracted safety-seeking investors.

Looking Ahead

While headlines about trade tensions, debt levels, and politics are likely to continue, markets have shown resilience. Economic growth in many regions remains steady, inflation pressures are easing, and central banks are edging towards more stable interest rate policies. For investors, it’s a timely reminder that staying diversified and focused on long-term goals can help weather the ups and downs of short-term news.