Post-March Reflections: Tariffs Back on the Agenda

Whilst this commentary focuses on market developments through March, it is worth noting that the main market narrative has shifted sharply in early April. On 2nd April, the US administration introduced a new wave of tariffs on Chinese imports—reigniting trade tensions and creating fresh uncertainty across global markets. While this sits outside the March reporting period, the implications are already being felt, particularly given concerns about inflation and the fragility of global supply chains.

In this environment, it is important to distinguish between manageable ‘risk’ and broader economic ‘uncertainty’. The latter is harder to quantify and plan for, yet it’s the dominant theme today. The Global Economic Policy Uncertainty Index has reached its highest level since the early Covid era. History suggests this can eventually offer contrarian buying opportunities, but in the short term, it reinforces our view to remain fully invested but close to benchmark positioning. This is all in the context of the budget changes from October 2024 in the UK, which has caused some uncertainty among businesses and individuals alike.

US: AI Disruption and Policy Volatility

US equities underperformed in Q1, with the S&P 500 down 4.6%. The initial shock came from China’s DeepSeek R1 AI model, which challenged the economics of high-cost US AI infrastructure. That was followed by renewed economic policy shifts from President Trump’s administration, notably tariff proposals and deep cuts to federal spending. Consumer confidence slumped, inflation expectations ticked up, and earnings forecasts were revised lower. The ‘Magnificent 7’ stocks declined 15%, while other sectors—particularly Energy and Consumer Staples—held up better.

UK: Holding Steady

The UK was a relative ‘safe haven’. The FTSE 100 delivered gains, driven by sectoral strength in energy, financials, and defence. Sterling appreciated to $1.29, but this didn’t derail returns. Domestically focused mid-cap stocks fared less well, with the FTSE 250 down 5% as UK growth remained muted.

Europe: Entering a New Era

Europe saw a strong start to the year. The election of Germany’s Friedrich Merz and a pivot towards defence and infrastructure investment triggered a re-rating in equities. Germany’s DAX rose 10.7% in Q1, and the EU’s €800bn defence investment plans have captured investor attention. While some remain pessimistic,  this could mean a shift in Europe’s role on the global economic stage.

Emerging Markets & Gold

China gained 15% YTD, helped by technological momentum and early signs of domestic stabilisation. Broader emerging markets were mixed. Gold, meanwhile, continued its strong run, buoyed by central bank buying and its status as a geopolitical hedge.

Future Outlook

As we enter the new tax year, we remain cautiously optimistic for the remainder of 2025. While policy risks remain elevated – especially in the US – long-term opportunities exist, particularly if AI productivity gains, European stimulus, and defensive sector strength continue to play out.

In our next market update, we will provide further commentary on the events currently unfolding in April. Should you have any queries relating to this or recent updates, please do not hesitate to get in touch with a MacDonald Partnership Independent Financial Adviser on 01463 242 242.