Market Commentary Q1 2025

We live in a world of disruption and innovation, with digitalisation ruling everything we do. It is fair to say that we have been through a period of extraordinary volatility. The war in Ukraine rumbles on with varying degrees of Western support, whilst the Middle East conflict has the potential to escalate dramatically.  Up until now, there has been no major stock market reaction to the turmoil in the region and the primary market concern centres on oil production and trade routes. Whilst neither Israel, Lebanon or the Gaza strip play host to major oil and gas infrastructures, any substantial escalation of a wider conflict in the Gulf region could send oil price soaring, with the major concern being Iran, which has had its oil production sanctioned in recent years, controlling the Strait of Hormuz – a route that facilitates the transport of 15% of global oil supply.

Geopolitics and conflicts remain causes for concern in the minds of investors and the outlook does appear to be much brighter now as economic conditions are improving – global inflation has fallen and interest rates are starting to reduce, with expectations of further rate cuts both here and the US over the next 12 months. This has meant that most asset classes have risen over the last 12 months and generally the outlook for the global economy has shown signs of improvement. Although global inflation is forecast to remain at more “normal” levels throughout the year, expectation of interest rate cuts has reduced. Donald Trump returning to the White House and potentially imposing significant restrictions on trade and immigration could boost inflation. This may mean that the Fed opt to keep rates higher than otherwise planned through 2025, which in turn could severely dent the Bond market which has recovered well following a few years of high inflation. Overall, the US market has generally performed very well thanks to the artificial intelligence (AI) boom over the past 18 months or so led by the “the Magnificent Seven” technology shares: Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla. Excluding these stocks, the US market has performed average at best with inflation continuing to fall (albeit slowly) and the jobs market remaining fairly healthy.

Political upheaval seems to have caused The Eurozone to remain sluggish and as a result manufacturing has struggled, whilst although the UK appears to have rebounded from the technical recession at the end of 2023, the Labour Government is facing huge challenges, with low growth and additional spending and this could also increase inflation fears going forward.

We continue to take a long-term approach a well-diversified portfolio continues to be the priority to counteract volatility and attempt to ‘smooth out’ returns.