The first quarter of 2025 has not been kind to investors. Indeed, we have just come through the worst quarter and month (March) for US equities since the start of the COVID-19 pandemic. Both the S&P 500 and Nasdaq Composites entered official correction territory in March as markets digested the possible impact of US President Donald Trump’s tariffs on the global economy.
Equities have been on a rollercoaster ride since Trump’s inauguration as the 47th president of the US in January. The gains we saw in stocks just after the US presidential election have been erased as investors and businesses started to consider that Trump might actually be resolute in implementing his threatened tariffs, even with his acknowledgment that this would have a materially negative impact on US stock market indices.
The S&P 500 ended the quarter down 4.3% and fell 5.6% for March, while the Nasdaq composite dropped 10.4% for the quarter and 8.2% for the month. The Big Tech stocks in the Magnificent Seven were especially big losers, but industrials and consumer cyclicals are also taking pain as a result of Trump’s tariff turbulence and lower consumer confidence.
In a remarkable reversal from the pattern for most of the past 15 years, the flagship US indices have underperformed the rest of the world. While it would be premature to call this the end of “US exceptionalism” in the stock market, we are seeing signs of a rotation towards other territories as discussed by Philip Saunders in his podcast.
Global rotation as US indices underperform
For the first quarter, and in dollar terms, the FTSE 100 ended 8.6% up, the Euro Stoxx 50 was up 7.2%, the Hang Seng Index was up 15%, and the MSCI World was down only 1.7%.
Along with the turbulence that has hit the US equities markets and contrary to what one might expect with aggressive tariffs on the horizon, the US dollar has not fared well this year. This runs contrary to the trend in most downturns when the dollar – as the world’s reserve currency has served as a safe haven.
Despite a late surge on the last day of the month, the US dollar closed out one of its worst months in nearly three years in March. The DXY Index, which tracks the US dollar against a basket of peer developed-world currencies, dropped 4.10% for the quarter – a significant move compared to a typical quarter, reversing all its gains since Trump’s victory rally.
Gold has enjoyed a remarkable quarter, up 20% to around $3,100 per ounce. Dollar weakness partly explains the rise in the price of gold, but central banks worldwide have also boosted the precious metal’s price by increasing their reserves. Our quantitative model shows that gold is expensive by historical standards, but we have maintained an allocation of around 8.2% to this particular asset in our local Preserver Fund as an inflation and rand hedge.
$5 Trillion sell-off signals ongoing uncertainty
Looking deeper into 2025, we are expecting the unexpected. The $5 trillion stock market sell-off of the past six weeks will not be the end of the turbulence, with economists such as Goldman Sachs raising their odds of a recession in the US. The Trump Presidency is likely to cause volatility for its duration.
Many economists remain concerned that tariffs threaten higher prices, which means hot inflation prints, and in turn, higher interest rates for longer. The choppy trading environment and higher borrowing costs may dampen business investment, job growth, and spending for the US in the months ahead.
As such, we are taking a cautious approach to phasing new money into equity markets, especially with interest rates at a relatively high rate. That said, we are starting to see opportunities open to buy into markets at a low point, especially in some quality funds that had not run as hard as the S&P 500 or Nasdaq indices.
Turning to South Africa, the JSE ALSI performed relatively well in rand (5.9%) and dollar (10.2%) terms for Q1. Rising gold prices and a weaker dollar were positives during the period. Nonetheless, with sporadic load-shedding, political uncertainty, weak economic growth, and the possible impact of US tariffs, we do not anticipate sustained outperformance from local markets, a view we have often expressed in our weekly Newsflashes.
Especially with a contested National Budget putting the future of the Government of National Unity at risk, it remains unlikely that South Africa will implement the economic reforms that would warrant an upwards rerating of South African assets. We, thus retain our bias towards offshore investment for most of our clients.
At the time of writing, and following Trump’s tariff clarification on Wednesday, the S&P was down 3.9% on the day, with the ALSI having closed 3.4% weaker for the day. This is no longer just a market correction, but rather a structural shift in how businesses and investors interpret the impact that tariffs and counter-tariffs will have on the global economy. Senator Chris Murphy noted that the tariffs make no economic sense because “they aren’t designed as economic policy. The tariffs are simply a new, super dangerous political tool.” Murphy suggests they are a way to make private industry dependent on the president, the same way he has tried to make law firms and universities dependent on him.
We have no doubt that the onset of Trump’s 2nd presidential term has been a defining event of severe disruption for the geopolitical landscape as well as for global financial markets and currencies.
We have successfully navigated our clients through past severe market turbulence, one of the more recent ones being the COVID-19 induced crisis when the S&P 500 dropped by 34% from its peak. Notwithstanding the severe global recession in 2020, the index ended up 18.4% for the calendar year.
Market recoveries tend to be even more unpredictable than market crises but developed-market equities have empirically proven to be a winning asset class for the patient, unemotional, and long-term investor.
