Tariffs to tailwinds

After the volatility we saw in April driven by US President Trump “Liberation Day” tariffs, equity markets recovered across the board as these trade tensions began to ease.  We also saw improving consumer sentiment and robust corporate earnings which all helped drive positive equity market returns. 

The US market was the best performing region, underpinned by a strong Q1 earnings season. Of the companies that reported, 77% exceeded earnings expectations.  The euphoria was felt across the market cap spectrum, as small cap stocks rebounded buoyed by proposed tax cuts and potential regulatory changes.

US-EU trade negotiations and a temporary delay in planned tariff hikes, alleviated fears of a global trade war leading to European markets posting positive returns. 

We also saw the Bank of England cut interest rates by 25bps to 4.25%, which followed the ECB’s rate cut in April. Central banks have felt confident in lowering borrowing costs as inflationary pressures have subsided, though this did not lead to positive returns for most of the bond market.

UK Consumer confidence was better than expected, supported by falling inflation.  Tax cuts and proposed infrastructure spending also helped the small cap part of the UK market, reflecting expectations of domestic policy stimulus.

Bonds experienced heightened volatility, driven by shifting trade policies, fiscal concerns and evolving expectations around inflation and monetary policy. 

Global government and UK government bonds sold-off.  In the US, rising fiscal concerns, including Moody’s downgrade of US sovereign credit rating, triggered a sell-off particularly in longer-dated bonds, pushing yields higher. 

Corporate bonds were more resilient on the back of positive corporate news flow, but returns were modest.  Commodities and gold pulled back over the month.  Gold as a defensive asset class declined, as investors favoured equities, but the asset class has had a meteoric rise over the last couple of years and has delivered very attractive returns through 2025 so far.

Looking ahead the outlook for the year will probably continue to be dominated by geopolitics and President Trump’s name will not be far from investors minds. 

Trade negotiations between the US and the rest of the world post “Liberation Day,” remain ongoing and are likely to dominate the headlines and contribute to market gyrations as we progress through the year.

In these challenging times, diversification remains the key but as always opportunities will present themselves. A calm head in such times is needed.