Market update – Quarter ending 31 March 2025

US President Trump’s tariff announcements drove the market narrative for the quarter ending March 2025. Fears of slowing growth, sparked by uncertainty over Trump 2.0 tariffs and a weakening AI growth story, led to a sharp selloff in equities in the second half of the quarter. The so-called Magnificent 7 stocks, regarded among the world's largest and most influential tech companies, fell 15% over the quarter, reversing their previous role as market leaders in 2024 as a low-cost AI model from Chinese startup DeepSeek challenged US dominance.

Global shares^[1] returned -2.7%, while in NZ dollar terms they returned -3.1% as the US dollar fell. The US share market^[2] hit a record high on February 19 but ended the quarter down 4.3% - its worst quarterly performance since September 2022.  European share markets bucked the trend, with the Euro STOXX 600^[3] climbing 5.8% over the quarter. Germany’s €500 billion infrastructure plan and an €800 billion EU defence boost fuelled investor inflows, while central banks shifted to pro-growth policies to offset US trade tensions. Meanwhile, New Zealand equities^[4] fell 6.4%, hit by weak company profits and capital raisings. the Reserve Bank of New Zealand cut the OCR by 50 basis points in February to 3.75% as expected and signalled more easing ahead (it has since been lowered to 3.25%).

Global bonds^[5] overall gained 1.1% for the quarter. US Treasury yields fell (bond prices rose) with the 2-year treasury yield falling 35 basis points to 3.90% and the 10-year treasury yield falling 36 basis points to 4.20%. There were some exceptions – Japanese government bond yields hit a 17-year peak after a rate hike by the Bank of Japan which indicated further upward normalisation of rates was underway, and China’s government bond yields edged up as its economy showed signs of stabilising. Global corporate bond yields widened as investors demanded more return amid uncertainty.

Taking a closer look at how the Trump administration’s tariff announcements are impacting businesses, consumers and the market:

• For businesses, the fluctuating tariffs has complicated planning and forecasting and as a result, companies have begun to defer their capital expenditure investments and/or have been reducing hiring.
• For consumers, this has negatively impacted consumer confidence as they worry about their future financial conditions, and in turn they have begun to reduce and/or delay discretionary purchases.
• For investors, the evolving tariff news headlines and potential retaliation has made it difficult to assess economic growth prospects and corporate earnings. The lack of clarity has kept markets jittery and has increased volatility which is likely to be sustained until more definitive trade outcomes emerge.

What does this mean for investors?  Stay Calm, Keep Perspective:

While the March quarter brought market turbulence,  volatility isn’t new and generally, for investors whose portfolio matches their goals, if these haven’t changed, we usually suggest that they stay the course.   Your funds are diversified across various asset classes plus our underlying managers are skilled and experienced and can help smooth the ride. Markets will keep reacting to trade news, but they will also adapt. Investors who sell in a panic may miss out on the market’s best days – and that can have a heavy financial penalty. This is why you’ll hear people say that success is about time in the market, not timing the market.

^{[1] MSCI World Net Total Return Index (local currencies)}

^{[2] S&P 500 Total Return Index (USD)}

^{[3] Euro Stoxx 600 Total Return Index (EUR)}

^{[4] S&P/NZX 50 Total Return Index (NZD)}

^{[5] Bloomberg Global Aggregate Bond Index (hedged to NZD)}