– Equities retreated amid escalating trade tensions and recession fears
– Bond markets saw volatility as inflation concerns intensified
– Germany unveiled fiscal stimulus
March 2025 brought significant volatility across global markets, shaped by intensifying trade tensions, divergent central bank policies, and mounting recession concerns. Investor sentiment deteriorated as the US administration dramatically expanded tariffs targeting multiple trading partners, while fiscal developments in Europe and the UK highlighted contrasting approaches to economic challenges. The combination of increasing protectionism, sticky inflation, and slowing growth created a complex environment for investors navigating an increasingly uncertain global landscape.
Equities faced the brunt of the growing uncertainty around global trade and economic growth, with the S&P 500 extending its February correction, losing 9.4%, in Euro terms, in March, heavily impacted by technology and cyclical sectors reacting to escalating tariff threats and policy uncertainty. European equities also weakened, with the MSCI Europe index declining by 4.6%, driven by sluggish regional growth and heightened US trade tensions. Germany’s substantial fiscal stimulus announcement later in the month provided partial relief, benefiting defence and infrastructure-related stocks in particular.
In the UK, the FTSE 100 fell 4.0%, though exposure to banks, defence stocks and commodities offered an element of protection to the region. Japanese equities fell by 5.0%, while broader Asian sentiment was mixed. Notably, Chinese equities held up well, losing only 2.0% despite ongoing trade concerns.
On the whole, a strengthening of the Euro versus other major currencies through the month weighed on equity market returns for Euro investors.
Bond markets saw volatility throughout March but held up relatively well, helped by a rally across most major indices in the final week. US government bonds gained 0.1%, as recession fears drove Treasury yields lower in a flight to safety and a repricing of Federal Reserve rate cuts this year. In Europe, bonds reacted negatively to Germany’s fiscal stimulus announcement, with Bund yields moving sharply higher, and causing European government bonds to lose 1.7%.
Despite broader market volatility, corporate bonds displayed notable resilience, highlighting selective investor confidence in credit quality amidst macroeconomic uncertainties.
Currency markets reflected the broader themes playing out across economies. The US dollar weakened against all major currencies, as investors reassessed the demand for US assets given trade uncertainty and a weaker economy leading to more rate cuts. In contrast, the Euro exhibited strength, as investors reassessed the trajectory of European interest rates, given increased fiscal spending and signs of economic growth in the region.
Trade policy dominated economic discussions in March, with the US administration aggressively expanding its tariff regime. Having already implemented tariffs against China, Canada, and Mexico in February, President Trump ordered a 25% tariff on autos and auto parts on March 26, effective April 3rd.
Initial tariffs announced on March 4th were somewhat watered down after negotiations, but tariff rates on US imports from Canada and Mexico have still ended up at double-digit levels. As at end-March, the market currently assumes 25% tariffs will be reimposed in April on imports from Canada and Mexico (with a lower 10% tariff on Canadian energy) alongside the steel, aluminium and China tariff.
Taken together, the overall US effective tariff rate is expected to significantly rise from its previous level – a dramatic shift that reverses several decades of trade globalisation. Markets are now bracing for further potential escalation, with additional “reciprocal tariffs” expected to be announced in early April, following what Trump describes as the United States’ “Liberation Day” on the 2nd. Investor concerns extend beyond the blunt tariffs currently being enforced or threatened, particularly given the ongoing uncertainty surrounding their exact nature, with plans appearing to shift almost daily. This volatile environment makes it extremely difficult for businesses and consumers to plan effectively, leading to delays in capital expenditure, hiring, investment, and broader spending. Such hesitation may result in knock-on effects further down the line.
All this uncertainty is already beginning to weigh on business and consumer confidence, as well as broader economic projections. In the Federal Reserve’s March meeting, they updated their projections for the end of 2025, shown below, lowering growth, while rising the rate of inflation and unemployment. However, it is important to note that these levels are still far from forecasting a recession and independent from political noise would be considered healthy.
Outside the US, March brought a paradigm shift in European fiscal policy, centred on Germany’s massive stimulus announcement. The incoming CDU-SPD coalition government proposed an unprecedented fiscal expansion that quickly earned the nickname “fiscal bazooka”. The package totals approximately €500 billion (12% of 2024 GDP) and represents a dramatic departure from Germany’s traditional fiscal conservatism.
The plan includes widening the structural deficit allowed under Germany’s constitutional debt brake, exempting defence spending above 1% of GDP from deficit calculations, and creating a sizeable infrastructure fund outside the scope of the debt brake. This would fund a substantial increase in defence spending from just 1.3% of GDP in 2021 to around 3% by 2027, alongside an accelerated €100 billion investment in transport, energy, and digital infrastructure.
This fiscal expansion is deemed significant enough to transform Germany’s economic outlook. Economists have substantially revised their projections upward, now expecting GDP growth to average 1.8% over the next four years – 0.7% higher than forecast just a month ago. However, this fiscal expansion also raises inflation concerns for the region.
The global market and economic environment we find ourselves in presents a complex mix of challenges and opportunities. Escalating trade tensions, persistent inflation concerns, and mounting recession fears create headwinds, yet selective opportunities exist across asset classes for investors.
The key to navigating this uncertain landscape lies in diversification, across geographies, asset classes, sectors, and investment styles. By maintaining a balanced approach, focusing on quality, and remaining tactically flexible, investors can position portfolios to weather potential volatility while capturing opportunities as they emerge.
At Fairstone, we specialise in providing tailored investment planning advice to help clients achieve their financial goals. Our experienced advisors offer personalised strategies designed to optimise growth, manage risks, and ensure diversification across a wide range of assets. By working with Fairstone, you can have confidence that your investment decisions are guided by expertise, adaptability, and a commitment to your long-term success.
Contact us today to schedule a no-obligation investment consultation and start planning for a secure financial future.
This publication was prepared by Harry Scargill, Portfolio Manager & Imogen Hambly CFA, Portfolio Manager for Fairstone Private Wealth Ltd (United Kingdom).Fairstone Private Wealth Ltd. is authorised and regulated by the Financial Conduct Authority (FRN: 457558).
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Information as of the date of publication 07/04/2025
