Global equity markets in 2025 delivered a story of resilience and divergence. Despite a turbulent backdrop of trade tensions, geopolitical uncertainty and shifting monetary policies, equity markets worldwide climbed to record highs with all major developed markets providing double-digit returns in sterling terms at the time of writing. Yet, beneath the headline gains, performance varied dramatically across regions and sectors – from Europe’s unexpected renaissance to Asia’s tech-fuelled surge.
Both equities and bonds started the year well, buoyed by expectations of pro-growth policies from the new Trump administration – tax cuts, deregulation and the familiar “America First” rhetoric. However, this positive sentiment faded quickly. The major US technology giants, which had dominated market leadership for several years, came under heavy pressure after the Chinese AI start-up DeepSeek released a model seen as a potential industry disruptor at a fraction of the cost. At the same time, uncertainty around tariffs, immigration and tax policy, as well as signs of softer US consumer confidence, caused investors to reassess the outlook. The result was a period of pronounced US underperformance during the first quarter with the S&P500 Index lagging global equities by 3% and the UK and Europe by 13% and 18% respectively (in sterling terms).
The second quarter got underway in dramatic fashion. On 2nd April (Trump’s Liberation Day), the US unexpectedly imposed a broad set of import tariffs on countries around the world, most notably on China, triggering a sharp sell-off across global markets with very few areas of the market escaping the effects of the announcement. The Volatility Index (VIX) spiked and reached its highest level since the Coronavirus outbreak in 2020. Fast forward a couple of days, the realisation on supply chain issues and further inflationary pressures hit, Trump told investors “THIS IS A GREAT TIME TO BUY” on his social media platform, Truth Social, hours before putting a 90-day pause on tariffs which saw markets rally close to 10% and regain their footing (the S&P500 gained circa 70% of the value it had lost over the previous four days of trading). A subsequent agreement between the US and China to reduce tariffs eased investor concerns further and by May equity markets had returned to pre ‘Liberation Day’ levels.
Q3 was much quieter, with a continuation of the rally for risk on assets. A combination of strong Q3 US corporate earnings, the first Federal Reserve (“Fed”) rate-cut, an extension of the AI boom narrative and easing trade tensions led to strong returns from both the US and China.
Into the final quarter of 2025, on 29th October the Fed announced the end of its QT (Quantitative Tightening) policy and whilst this would ordinarily be a positive catalyst for a ‘Santa’ rally, overarching concerns around AI capex spending and stretched valuations weighed on equity markets. This was highlighted by the negative $1trillion swing in the AI-darling Nvidia’s market cap following blow-out earnings. These worries saw outflows from the technology sector to other defensive areas, highlighted by the performance of the healthcare sector +8% vs +3% of the MSCI world (in sterling terms) so far this quarter.
Something we have spoken about on numerous occasions over the last few years is the changing world environment. This year’s performance, not only from a geographic perspective but also from a sectoral perspective, speaks to a different environment – one shaped by more global capex cycles, supply-chain diversification and new geopolitical realities. Technology stocks accounted for over half of global equity market returns in 2024, however this year we have seen other sectors driving the markets higher: communications (+23%), materials (+18%), industrials (+18%) and financials (17%).
This changing world environment stresses the importance of having decision making capabilities locally so that investors can act quickly. Our focus remains on positioning portfolios to ensure we are diversifying across various regions and sectors and ensuring we are aligned with the structural trends shaping the next phase of the global cycle.
