Market Updates
Quarterly updates on financial markets
Investment update – 31 March to 1 July 2025
Overall, the second three months of the year were positive for most asset classes, but markets were highly volatile as investors came to terms with President Trump’s tariff announcements and economic uncertainty.
The second quarter of 2025 started in a dramatic style with US President Donald Trump’s announcement of his ‘Liberation Day’ tariffs. This sent a shockwave through markets – the S&P 500 of US shares fell sharply, as did equity markets across the globe. This led 10 Year US Treasury yields to tumble as investors moved out of equities and into the relatively lower-risk world of government bonds (yields fall when bond prices rise).
However, markets rebounded quickly as President Trump issued a series of announcements moderating his initial tariff levels and providing exemptions in some areas, notably those related to technology. With these reassurances, and as the initial shock receded, equity prices rose and ended the quarter substantially higher than where they started, led by the US once more.
Outside of the US, the tariff cloud proved to have a silver lining for some regional markets – a weaker dollar was positive for emerging markets, for example. The FTSE 100 saw one of its stronger quarters in recent years as investors shifted some of their US weighting into the UK and a similar reassessment was positive for European equities. Improved sentiment for the UK was boosted by positive news about trade negotiations between the US and UK that would mitigate tariff exposure.
US government bond yields rose slightly over the quarter – meaning bond prices fell, overall – but this hides further volatility. As well as the tremors caused by the tariff announcements, President Trump’s suggestion that he was inclined to fire the chairman of the US Federal Reserve (the Fed), Jerome Powell, caused further disquiet. Central banks are expected to act independently, and so intervention from central government is highly unusual. President Trump finally backed away from this idea, which has gone some way to moderate investor views.
In the UK, government bonds had a similarly tumultuous time. The government’s surrender on reducing expenditure on various disability benefits led to concerns about the UK’s budget deficit and growing debt, leading to a sharp rise in yields. The Bank of England cut the base rate in May, and still predicts falling inflation, which helped to stabilise UK bond yields towards the end of the quarter.
Outlook
It is fair to say that the current investment outlook is somewhat unclear. AI remains a major trend supporting equity markets, with companies investing heavily. This is helping to drive increased revenues across a range of related areas, such as data centres, research and engineering staff, and renewable energy sources. However, the sharp market movements we saw around the ‘Liberation Day’ announcement shows the potential for economic surprises to disturb markets, and we should not lose sight of this.
The US economy’s performance continues to defy expectations. Recent data has confirmed the ongoing strength of the labour market and of consumer spending. President Trump’s policies do not seem to have had a significant negative impact – at least, not yet. We expect government bond yields to trade in a relatively narrow range over the coming month, as the Fed moves towards an easing in September and Europe faces lower growth and inflation.
Uncertainty is something that all investors have to deal with. Being aware of the risks, and being ready to move quickly should they eventuate, has the potential to mitigate losses and can also highlight buying opportunities for quality assets at attractive valuations. At AXA Investment Managers we are focused on evaluating these risks and ensuring we are ready to respond to market signals as they arrive.
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Past performance is not a reliable indicator of future results. The value of investments may fall as well as rise and you may not get back the full amount invested.
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
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The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.