Q1 2025 Market Update

Given current news headlines, it would be remiss of us not to use this quarterly market update to address the ongoing stock market volatility we have seen following President Trump’s ‘Liberation Day’ announcements last week.

In this edition, read expert insight about:

• Trump’s tariffs cause market volatility
• How the current market volatility affects your investments
• Six things to remember

Trump’s tariffs cause market volatility

You will no doubt have seen that President Trump’s imposition of tariffs on countries across the globe has created headlines worldwide and caused stock markets to react negatively.

Dubbed “Liberation Day” by the president, the tariffs set a new precedent for US trade relationships with countries all over the world.

The US has imposed a baseline tariff for all imports, standing at 10%. Several countries will face this level, including the UK, Brazil, Singapore, Australia, and a handful of others.

Meanwhile, other nations are facing much higher reciprocal tariffs, particularly in Asia where the US faces most competition in sectors such as manufacturing. Most notably, the tariffs include a 34% charge for Chinese goods, while countries in the European Union have been hit with a 20% duty.

Markets have been bracing themselves for this announcement for weeks. Now that it has landed, it has proven to be towards the more extreme end of what investors considered possible, and that has weighed on markets.

From an equities perspective, the impact on companies is complex and varies stock by stock. The impact does not depend on where companies’ shares are listed, or even where they sell their goods, but rather where they manufacture their goods.

The immediate effect of these tariffs is the prospect of a trade war, leaving investors bracing for a potentially extended period of uncertainty.

As the situation continues to evolve, we are already seeing reduced forecasts for economic growth in the US, as well as those countries now targeted by Trump’s trade policies.

In the short to medium term, the tariffs are also expected to raise inflation, making it harder for central banks to lower interest rates that typically support economic growth.

How the current market volatility affects your investments

As illustrated in the chart below, you can see the sharp decline experienced by all the major equity markets following the ‘Liberation Day’ announcements on the 2^nd of April.

Source: FE fundinfo, 7 April 2025

The recent equity market volatility has been stark, and you may have had a nerve-wracking few days, but it is important to remember most people are not only invested in equity markets.

A key component of our approach to financial planning is managing the level of risk our clients take with their investments, by diversifying across a range of asset classes. When we compare the performance of the various equity markets over the six months with the performance of the 0-35% share sector, 20-60% share sector, and 40-85% share sector below, we can see the effect of the recent equity market selloff is much less extreme.

Source: FE fundinfo, 7 April 2025

Media headlines are further exacerbating uncertainty

We know it is hard to ignore the headlines, but it is also important to take a long-term view. The chart below shows the performance of the same mixed investment sectors over the last five years.

Source: FE fundinfo, 7 April 2025

As you can see, when viewed over the longer term, recent equity drops and their effect on the mixed investment sectors are less acute, especially for lower risk investors.

Six things to remember

So, with all this in mind, while we can’t affect any policy changes or the outcome, we can help you navigate the headlines and market turbulence, and remind you why it’s key to stay calm during periods of uncertainty.

Here are six things it is important to remember right now:

1. Think long term

The most successful investors think about the long term and ignore short-term fluctuations.

As legendary investor Charlie Munger of Berkshire Hathaway famously said, “The big money is not in the buying and the selling, but in the waiting.”

2. Market volatility is normal

World events have always impacted and will always impact the world’s stock markets. Think back to five years ago and the COVID-19 crisis, or to 2022 when Russia invaded Ukraine.

Markets recovered after both events, rewarding investors who accepted that volatility is inherent in investing.

3. Diversification is your friend

Diversification and careful planning mean your investments are positioned to handle temporary downturns.

Short-term losses in the value of your investments can be offset by gains elsewhere.

4. Emotional decisions and knee-jerk reactions can do more harm than good

Jack Bogle, founder of Vanguard, once said: “Time is your friend; impulse is your enemy.”

He was right. Reacting impulsively to headlines or taking knee-jerk reactions to events like those we have seen in the past few days can harm your long-term financial health.

5. Headlines drive fear, not strategy

Headlines are designed to provoke a reaction and naturally focus on the short term.

In contrast, your financial plan is built on logic, evidence, and the long term.

6. Trying to time the market is a mistake

When markets fall, some investors are tempted to try to time the market by moving to cash and then looking for the perfect moment to reinvest.

In our experience, investors who try this will likely experience lower returns in the long term than those who stay invested.

We’re here to help

As financial planners, we have helped clients weather many economic storms over the years, and that is something my team and I are proud to continue doing.

Markets may rise and fall, but your investment goals should remain the same, and it is our job to help you achieve them. For 20 years, clients like you have trusted us to provide honest, independent advice in a friendly and professional way.

If you have any questions about anything you have read in this update, please do not hesitate to contact your financial adviser, who will be happy to give you all the support you need.