2025 began with broad optimism for economic growth, particularly in the US, despite impending tariffs as well as other economic policy changes. However, optimism faded in late March and early April as the US stock market fell significantly following the “Liberation Day” tariff announcements. Additionally, global expectations for GDP growth have diminished, while inflation expectations have risen even as current inflation measures moderate.
Expectations aside, equity market performance has since recovered and reached new heights, though current geopolitical events in the Midde East and Eastern Europe, tariff policy uncertainty, the US fiscal position, and other potential risks remain. During the quarter, global equities returned 11.5%; international developed, emerging markets, and U.S. equities returned 12.0%, 12.0%, and 11.0%, respectively, driven by a 90-pause in Trump’s tariff policies to negotiate possible concessions with trading partners.
At the same time, most international central banks have lowered interest rates, working in tandem with fiscal stimulus. In comparison, interest rates in the US remain elevated while fiscal policy is accompanied by financial stability concerns. In combination, equity performance across international and emerging markets continued to exceed that of the US, albeit marginally.
The US Treasury yield curve changed shape incrementally during the quarter, largely on expectations, as near-term maturities saw yields fall anticipating future Fed rate cuts. Intermediate to longer maturities saw yields increase alongside conflicting future US GDP and inflation expectations. The now-approved budget package is set to further increase the federal deficit and debt.