We are just over three months into 2025 and it’s certainly been an eventful period across the world. The much-anticipated Trump presidency has dominated the global political landscape. Europe too has been impacted by political uncertainty in the face of US changes to trade policy and their approach to the war in Ukraine. There’s been a lot going on but how is this impacting financial markets and what could we expect as we continue to move through 2025?
At Scottish Friendly we want to support our customers with the information they need to make informed decisions about their investments. Our outlook articles are published to help customers understand the events across the globe which could impact their investment’s performance.
Keeping focused on your long-term goals
The US application of tariffs across the world is impacting global market performance and creating short-term volatility.
When we see markets perform like this it can make investors feel uncertain and so it is important to remind ourselves of our long-term savings goals and the need to maintain our long-term approach to investing. Resisting the temptation to react to short term volatility and maintaining your regular investments when markets drop can mean the money you are investing in this period could buy more units in funds while the market is down. Should the market recover over time, your monthly investment could be worth more than when the market was high.
From around the world
The US
The start of the Trump presidency has begun after his inauguration on the 20th January and his actions since have never been too far from the headlines. From an investment standpoint this has resulted in volatility being introduced into markets across the globe where we have seen reactions to policy changes and global trade relationships.
Although there have been changes across the market, much focus in the general media has been around the performance of Tesla in the first quarter and the “massive falls” in share price, however this needs to be put into context. On the 23rd of October 2024 Tesla was valued at $213.65 a share, as at the time of writing this 24th March 2025 the price is $248.71 a share, an increase of over 16% in 5 months. Most investors would potentially be happy with that type of return, however coverage seems to suggest a very different story, where the real story is around volatility. Tesla benefited after the US elections until early 2025 from a surge in the US stock market which was primarily driven by tech stocks and Tesla. Since January there has been backlash against Tesla, and Elon Musk, from the customer and coupled with increased competition in the electric car industry from China predominately given their announcement on battery charging has weighed on the Tesla share price.
Tariffs have been the other main feature of the year so far and looking forward the path for the US stock market is unclear and will be very much dependent on continued statements from the US. The Trump administration seems determined to use tariffs to rebalance trade relationships around the globe. If the strategy of applying tariffs is widened this could be negative especially in the short term, however if these can be avoided through negotiation then this could end up being just short-term volatility with the US returning to growth.
The UK
The UK is not immune to the impact of US tariffs and although inflation continues to fall, and an expected fall in interest rates later in the year, economic growth has been less than expected and growth forecasts have been lowered for the year. With a range of household bills due to go up in April the squeeze on British consumers continues.
The UK is still felt to be undervalued by many industry experts and therefore may present many investment opportunities. One of the key indicators for assessing opportunities with companies is considering their price to earnings ratio. When comparing UK and US companies, the UK’s are less than half of equivalent peers in the US which indicates UK shares are undervalued. However, this doesn’t mean the UK stocks will increase given arguably the UK stock market has been undervalued for a number of years.
Europe
Within Europe, political uncertainty remains with several elections due to take place through the rest of 2025 which could have their own implications for European investment markets.
The ongoing conflict between Ukraine and Russia and the direction the war takes could have an impact on investment markets. Efforts from the US administration to bring the conflict to a close has received mixed reactions from around the world. At the point of writing there are ongoing talks to agree a ceasefire although detailed information on how this will work is not available. The direction of the talks taking place and the eventual outcome could have significant impacts in European stock markets and further afield.
With the geopolitical landscape changing and the Trump administration’s view of NATO a hot topic there is a renewed focus on the defence sector across Europe. There is evidence of this in Germany as they look to significantly increase their defence budget and boost the manufacturing of arms.
Globally
Global instability persists with conflict continuing, particularly in the Middle East. A temporary cease fire between Israel and Hamas in Gaza seems only to have lasted a limited period of time and fighting in the region has continued. Tensions continue between China and Taiwan with North Korea contributing to the region’s instability with ongoing inflammatory statements.
Within China there have been 2 key developments over the quarter which impacted investment markets. Firstly was the release of “Deepseek” AI which presented as a major challenger and disrupter in the AI market. Secondly is the release of new Chinese electric vehicles to the market which boast of recharge times of less than 30 minutes putting further pressure on US and European competitor brands. This continued development in technology could present significant investment opportunities in the region whilst also presenting risk to the market.
The tariffs imposed by the US will also likely impact global shares and those with Asia. It was interesting to note that China, Japan and South Korea released a joint statement in their response to US tariffs which is extremely unusual and also hints at potential changes to previous long term relations.
Overall
What does this mean going forward through 2025? With significant and unpredictable change comes uncertainty. We can confidently say that market volatility will likely remain elevated with no clear direction for market performance.
As investors what does this mean?
It is always important during periods of uncertainty to remember why you have invested, what the timeframe for your goal is and most importantly not to react and make knee-jerk decisions. If you are investing for a long period, for instance to supplement your retirement income, times of volatility can be positive and you will have time to “ride out” these uncertain times. Although past performance is not a guide to future performance we can look back and learn from other large events, Black Monday from the 1980’s, September 11th and the Global Financial Crisis. If you had remained invested and continued contributing then you have given your investment the time to recover those events and continue to have a positive return overall. When reviewing your investments, especially during these uncertain times, having a well diversified portfolio across multiple countries and different asset types like shares, bonds, property and money market instruments could support your long-term goals.
Remember that the value of investments can go down as well as up and you could get back less than you paid in. Past performance is no guide to future results.
