Market Commentary
Q1 2025
The global economic landscape moved negatively marked by slower growth, persistent inflationary pressures, and escalating trade tensions. Fitch Ratings projected global growth to slow to 2.3% this year, down from 2.9% in 2024, whilst the World Bank anticipated global growth to hold steady at 2.7% in 2025-26, suggesting it is settling into a low-growth trajectory which may not be sufficient for sustained economic development. US economic growth forecasts have been revised downward to 1.7% for 2025, reflecting the impact of recent trade policies, and the UK faces sluggish growth, projected at 0.7% for this year, due to base effects from late 2024 and weakening forward-looking data. Conversely, Japan's economy showed resilience, with expected growth of 1.2% in 2025, supported by rising wages and a gradual recovery in private consumption.
The Markets
The first quarter of 2025 began as last year ended with positive investor sentiment based on the continued path of solid economic growth in the US and this, supported by accommodative fiscal and monetary policy, powered the stock markets. While other areas of the global economy looked weaker, stock markets were pulled along by US exceptionalism.
However, investor sentiment changed significantly over the quarter, most notably with the decline of US technology stocks, as momentum in this sector was challenged. Conversely, previously overlooked areas of the world came back into focus, and European companies benefited from this change in sentiment. The catalyst for this has been the stance of the new US administration and the delivery of its promised strategies on tariffs, defence, and immigration.
Compared to the outlook in the final quarter of 2024, expectations diminished in the Quarter, and comments by the Federal Reserve (Fed) suggested that inflation could be more persistent in this environment. This shift in mood did not mean that a recession was imminent, but it pushed other economic regions to react strongly to counteract US policies which meant that global equity markets were volatile especially towards the end of the quarter.
The S&P 500 fell by 4.3% in the quarter led by technology focused companies and consumer discretionary. International markets showed strength. European equities posted their best comparative performance since the mid-1980s, rising by 10.5%, while Chinese equities surged by 15%. This outperformance was supported by a weaker U.S. dollar. Real assets also shone during this period, with commodities gaining nearly 9%, gold surging by 18%, and copper jumping over 25%.
In Q1 2025, the bond market experienced notable gains as interest rates fell, driven by economic growth concerns and a "flight to quality" amidst stock market volatility. Investment grade bonds faired particularly well during the quarter.
IP Model Portfolios – Performance commentary and fund changes
During the quarter, the accumulation and passive portfolios performed well and in excess of their benchmarks in January and February. This outperformance was driven by the overweight US and Global equity positions, however, as US tariff announcements started to hit valuations there was an underperformance across the board. The Fidelity Index US and Royal London Global Equity Funds were hit particularly hard due to their weightings in technology and consumer goods.
The Investment Committee sat at the end of January, and as performance of the portfolios at that time was very strong in comparison to peers and economic indicators in the US and Global markets was solid, there were no changes made.
Martin Nelmes
Investment Director and Chairman of the Network Investment Committee
This document is aimed at Investment Professionals only and should not be relied upon by Private Investors. Our comments and opinion are intended as general information only and do not constitute advice or recommendation. Information is sourced directly from fund managers and websites. Therefore, this information is as current as is available at the time of production.
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