Market update: First quarter 2025

The first quarter of 2025 was challenging for financial markets. The year started moderately positive, but uncertainty surrounding US trade policy had a major impact on global stock and bond markets. In Europe, announcements of large-scale government spending attracted attention, with consequences for interest rate markets.

Review of the first quarter of 2025: Concerns in the US and a recovery in Europe.

The year 2025 started surprisingly. The unexpected launch of a powerful new AI chatbot by the Chinese company DeepSeek on January 10 immediately caused quite a stir within the technology, AI and chip sectors. This innovation called into question the presumed dominance of American technology companies, which rely heavily on high investments and high-quality chips.

Although President Trump's inauguration initially caused some optimism, the sentiment clearly turned in March due to the threat of new import duties from the American government.

Europe was experiencing a recovery. European Commission President Ursula von der Leyen announced plans for almost 800 billion euros in defense spending. In addition, Friedrich Merz, the intended new German Chancellor, presented an ambitious infrastructure plan of 500 billion euros, supplemented by higher defense spending. These investments are expected to stimulate the growth of European companies in various sectors. However, these plans also put pressure on the price of European government bonds due to financing through new loans. This led to lower bond prices and negative effects on funds that invest in them.

Market correction at the end of March: US under pressure, European stocks benefit

The quarter closed with a sharp correction, especially noticeable in American stocks. The combination of uncertainty surrounding US trade policy and doubts about US superiority in the field of AI, reinforced by the introduction of DeepSeek, created a negative market sentiment. The exchange rate of the dollar against the euro fell by about 5%, making the returns on American investments measured in euros extra negative.

Capital partially flowed out of American stocks towards European markets. This has to do with the fact that European stocks have had a better ratio between the price of the stocks and the earnings of the underlying companies for years. American stocks, on the other hand, on average more often consist of so-called growth stocks: companies with a higher valuation compared to their current profit, based on the expectation of strong future growth. During periods of increased uncertainty, these growth stocks are generally hit harder, because their expected growth is already largely incorporated in the price.

The combination of capital flows to Europe and large-scale investment plans created optimism in Europe. Although this brought the global stock markets a little more into balance, the US market share remains by far the largest. As a result, the stock markets in Europe were only able to partially limit the global market decline.

Our advice: stick to your strategy

Despite the negative quarter, this period clearly shows the power of a well-diversified portfolio. While American stocks lost return, European stocks offered compensation thanks to a positive return. The fact that the total return was still negative is mainly due to the greater weighting of American stocks in global indices.

Our message therefore remains unchanged: don't be guided by temporary market movements. The Vive investment model ensures that your portfolio is optimally composed to match your risk profile.

Stay focused on your long-term goals

Don't let temporary market fluctuations throw you off balance. Keep your personal financial goals clearly in mind and only adjust your portfolio when your personal situation changes, not based on short-term movements. A broadly diversified strategy remains essential for long-term success.