• April 3rd, 2025
• By Midsilver Investment Limited

The first quarter of 2025 has been marked by significant volatility across global financial markets, influenced by geopolitical tensions, trade disputes, and shifts in economic policy. Notably, international equities have outperformed U.S. stocks, with global markets surpassing the U.S. by nearly 11 percentage points - a historic divergence. The S&P 500 faced challenges due to trade issues and the unwinding of positions in popular artificial intelligence stocks, compounded by a weakening U.S. dollar. Analysts suggest that if U.S. equities do not recover, foreign investors might redirect their capital to other markets, potentially exacerbating losses domestically. However, anticipated strong earnings growth in U.S. companies for 2025 could enable U.S. stocks to regain their lead by year-end.

The imposition of tariffs by President Donald Trump has significantly impacted major global companies, resulting in the most substantial decline in market value in nearly three years. The top ten global firms experienced a 13.2% decrease, amounting to a loss of $2.84 trillion. Companies such as Tesla, Broadcom, and NVIDIA saw their market capitalizations fall by 35.7%, 27.56%, and 19.59%, respectively. The Nasdaq Composite also declined by 10.42%. These tariffs, targeting aluminium, steel, automobiles, and all goods from China, have raised fears of a U.S. recession. In response, Goldman Sachs has reduced its earnings growth forecast for S&P 500 companies to 3%, down from 7%, citing the impact of tariffs, slower economic growth, and rising inflation.

The ongoing trade war initiated by the U.S. administration is projected to cost the global economy up to $1.4 trillion. Uncertainty surrounding the tariffs has led to declines in U.S. factory production and disrupted supply chains. Analysts warn that these tariffs could result in reduced orders, higher costs, and economic stagnation. In the UK, manufacturers are experiencing decreased confidence and increased job cuts due to the looming tariffs, prompting Goldman Sachs to lower the UK's growth forecast. European countries, while positioning themselves as safe havens for investors, are facing their own economic challenges. Ireland, in particular, could suffer from potential tariffs on pharmaceutical exports to the U.S. This situation has caused market volatility, with investors seeking safe assets like gold, which has reached a new all-time high.

Wall Street experienced its worst performance in nearly three years during this quarter, driven by fears of economic stagnation due to the imposed tariffs. The S&P 500 fell by 4.6%, with significant losses in major technology stocks such as Nvidia (-20%), Tesla (-36%), Apple, and Microsoft (both -10%). Uncertainty persists as new tariffs are anticipated, further affecting market sentiment. Goldman Sachs now estimates a 35% chance of a U.S. recession in 2025, up from 20%.

The global trade conflict has also hampered mergers and acquisitions (M&A) activity. While M&A volume rose 12.6% to $984.38 billion, this increase was predominantly seen in the Asia Pacific region, driven by China's state-run deals. Conversely, the U.S. experienced a 13% decline in M&A volume, dropping to $436.56 billion. Uncertainty introduced by the trade conflict has negatively impacted initial public offerings (IPOs), with a 17.7% reduction in the number of offerings. Global investment banking fees have also declined by 4.9% compared to the previous year, with analysts projecting lower earnings for major banks involved in M&A.

Investment bankers are increasingly looking to Europe for growth opportunities as U.S. activity diminishes, partly due to the ongoing trade war. Global investment banking fees have dropped 10% to $20.6 billion, with U.S. fees falling 7% to $10.6 billion and Europe's declining 22% to $4.6 billion. European deal activity is seeing a resurgence as investors seek stability, particularly in sectors like infrastructure and defense, which are gaining traction due to increased spending in response to geopolitical tensions. Despite a flat U.S. M&A market, European opportunities appear more robust, prompting investment banks to cut costs and shift focus accordingly.​

The quarter has also seen significant movements in commodities and currencies. Gold prices have surged, achieving their best quarter since 1986, driven by trade wars and geopolitical uncertainties. The U.S. dollar is experiencing its worst start since the 2008 financial crisis, leading to gains in emerging market currencies like the Russian ruble. U.S. tech giants have lost nearly $2 trillion in market capitalization, while Chinese tech firms and European defense companies have outperformed. The bond market saw U.S. Treasuries providing a 2.7% return, while German Bund yields rose significantly due to increased defense spending. Japan's government bond yields have also risen sharply with expectations of Bank of Japan rate hikes. Other notable price movements include a surge in commodities such as gold and copper, with coffee prices almost doubling due to droughts.​

In summary, the first quarter of 2025 has been characterized by heightened volatility and uncertainty across global financial markets. Trade tensions, particularly those initiated by the U.S., have had far-reaching impacts on equities, M&A activity, and investor sentiment. While some regions and sectors have shown resilience, the overall outlook remains cautious as markets navigate these complex dynamics.