Commentary for April 2025

Market Overview

Markets went on a rollercoaster ride in April, as the implications of the US administration’s new trade policy had a major impact across the globe. The move started on President Trump’s ‘Liberation Day’ with the announcement of a set of tariffs that were broader and more punitive than expected. These included a basic levy of 10% on all goods entering the US, plus additional reciprocal tariffs for 57 countries. China responded with its own 84% tariff on imports from the US. This led to back-and-forth retaliation from both parties, resulting in a 145% tariff on Chinese goods entering the US and a 125% tariff on US goods entering China. Stocks tumbled and the dollar weakened on fears that a trade war would bring lasting damage to economic growth and earnings.

US equities bore the brunt of the sell-off, losing more than 10% in two sessions following the announcement. The move was led by the mega cap technology sector, as investors rushed to exit stocks with expensive valuations. However, the market recovered much of its losses one week later as Trump softened the US approach, keeping the 10% baseline tariff but announcing a 90-day pause on all reciprocal tariffs (except for China) to allow countries time to negotiate. The rally from the lows saw stocks rise for nine consecutive days, one of the longest winning streaks in 20 years. Later in the month investors breathed a further sigh of relief as the US and China agreed to a temporary truce, removing additional levies for now. Markets were also reassured as the Q1 results season delivered steady profit growth, with earnings continuing to surprise on the upside, although many companies warned of uncertainty over the impact of tariffs going forward. As a result, the US market retraced most of its earlier decline, closing 3.9% lower, while most other global markets managed to close the month higher.

In relative terms the UK escaped lightly with only the 10% baseline tariff on goods exported to the US. It was also the first nation to subsequently agree the principles of a new trade deal with the US, easing conditions for British car exports and the agricultural market for both countries.

Gold blasted past another milestone, extending this year’s 30% rally and briefly surpassing $3,500 an ounce for the first time to close 5.3% higher over the month. Flows into bullion-backed exchange-traded funds and central bank buying have supported the upswing, with prices gaining every month this year. Commodities shed some of their year-to-date gains as the prices of oil and industrial metals weakened amid rising recession fears and a decision from OPEC members to boost supply.

On the economic front, US growth unexpectedly contracted by an annualised 0.3% in the first quarter of 2025. This was largely due to a sharp increase in imports, as businesses brought forward purchases of overseas goods ahead of tariffs. Growth would have come at a solid 3% if it wasn’t for this effect. However, forward looking metrics such as consumer confidence fell to the lowest level in four years, as tariff uncertainty stoked concerns about the future of the economy and the potential for price rises. As a result, economists dialled back their expectations for US growth, with a recent Bloomberg survey seeing GDP growth of 2% in 2025, down from 2.3% in last month’s poll. On a more positive note, inflation cooled, with the annualised headline rate down at 2.4% in March. This helps clear the path for the Federal Reserve to cut rates, possibly as soon as May.

UK equities closed 0.7% lower, driven by weakness in the energy sector. However, more domestically focussed smaller companies closed 3.6% higher. Bonds rose by 1.0%. The economy grew by 0.5% in February, compared to predictions for 0.1%. A number of corporate results also surprised on the upside. However, business survey data weakened significantly, reflecting a combination of trade uncertainty and the impact of higher taxes. Inflation also eased, falling to 2.6% in March, down from 2.8% in February. This raised expectations for a further interest rate cut when the Bank of England next meets in May.

Japanese stocks finished the month up by 1.7%. The Bank of Japan left interest rates unchanged at 0.5% and downgraded its forecasts for growth and inflation for 2025 and 2026. European equities also closed 0.9% higher, as the impact of Germany’s dramatic increase in government spending provided support for the defence and infrastructure sectors. The Eurozone economy grew by 0.4% in Q1. The ECB lowered borrowing costs by a further 0.25% to 2.25%. The key message was that disinflation is “well on track” while growth uncertainty has increased. Elsewhere, emerging markets registered a small positive return. Mexico was the top performing market as it faced no new trade tariffs from the US. However, Chinese shares were caught in the crossfire, falling 7.5%, despite a rebound following solid 4.5% GDP growth in the first quarter.

Looking Forward

US stocks have gone from scaling record highs to flashing recession worries in a matter of weeks. Policymakers will be watching closely to see the impact of trade tariffs and whether the recent damage to sentiment will translate into weaker spending. Assuming that the tariff war is likely to be resolved in coming months, the most likely outcome at this point is a mid-cycle pause in growth, rather than the end of the expansion period.

Recent policy changes in the US have compounded the trend away from US exceptionalism, the popular name for the dominance of US assets and in particular the Magnificent Seven mega cap technology companies that have led the market higher over the past decade. Bank of America’s latest survey of fund managers found the biggest switch away from US stocks on record. The US was priced for perfection, and its extreme performance differential meant that some narrowing of this gap was inevitable.

Plenty of opportunities remain, but we need to look beyond the winners of recent years as the ‘broadening out’ theme is likely to continue to play out. Given that markets outside of the US have only delivered a fraction of the returns in the post-2008 surge, the valuation gap is extremely high and, as a result, they have been able to make gains while US markets have pulled back. There is a strong case for equities in the UK, Europe and emerging markets along with infrastructure, precious metal and commodity plays.

Our Strategy

Overall returns for 2025 remain in positive territory for our standard portfolios, as robust diversification across a range of global markets and additional exposure to gold and gold mining stocks has captured the positive returns in many assets outside of the US.

As investors look to diversify away from the US, the UK market looks well placed to benefit from stock market rotation. UK equities remain undervalued, with an average price-to-earnings multiple of 12, representing a 50% discount to the current multiple of 24 for the US. The mid-cap segment is even more standout, trading at a 20-year low relative to the main index on the same measure. UK equities also have a strong track record in generating income, with a dividend yield close to 4%.

The US monetary policy outlook is likely to be supportive for emerging markets, where equities look set to benefit from stronger domestic growth. We are increasingly optimistic on China, where equities have benefited from a surge in enthusiasm for AI products. Policy measures implemented last year to boost growth are finally starting to translate into economic improvement. A stronger China would further increase the attraction of emerging markets in general and help unlock some of the value that’s been accumulating over the past decade or so.

While equities remain our preferred asset class, the prospect of lower rates means that bonds should outperform cash. From an income perspective, yields are now attractive in both absolute and real terms (relative to the level of inflation). Bonds also provide diversification in the case of slower growth but will not protect portfolios from the possibility that inflation remains higher for longer (except for index-linked bonds).

Alternative assets such as infrastructure, renewables, gold and commodity stocks offer a valuable additional source of diversification and allow us to hedge against inflation and other potential risks and capitalise on wider opportunities outside of traditional bonds and equities. Stimulus by China could exert further upward pressure on commodity prices.

Our exposure to both physical bullion and gold mining shares across standard portfolios has been a major contributor to outperformance against their benchmarks. We continue to view gold as essential portfolio insurance. We have held the view for some time that the combination of higher geopolitical risk, deteriorating fiscal trends and strong central bank demand have the potential to drive a powerful bull market, where multiple pockets of global capital attempt to diversify away from dollar assets into gold as a safe monetary metal. The market is simply not large enough to absorb large flows without much higher prices. For gold mining equities, current prices are likely to translate into record profit margins and the highest growth rate of any sector in the broader equity market.

Overall, we continue to manage investments in a manner that allows us to capture the upside in financial markets while also effectively controlling risk to dampen volatility and smooth the path of returns.