From geopolitics to markets, we saw several earthquake changes in the first quarter of 2025.
The impact on the market is newsworthy every day. Defense stocks have skyrocketedmeanwhile Car stocks have fallen. Even if interest rates are reduced, bond yields in Europe and the UK will rise. Gold prices were another new record, over $3,000 per ounce.
US stock markets are turning back
However, it was the US market itself that the wings were cut off and fell into correction.
In the past three months, Morning Star US Market Index -6.46% decrease. Morning Star US Large Cap Index– Measures the performance of large American companies, a 7.09% decline. As investors changed the tack, the money returned to European and British markets. Morning Star Europe Index It has increased by 11.51% over this same period. Morningstar UK Index It’s an increase of 9.92%.
If you were trying to timing the market throughout this period, you would have been rudely awakened. says Nicolo Bragazza, Associate Portfolio Manager at Morningstar.
“As geopolitics and political uncertainty grow, people may be tempted to think that there is an advantage in understanding the general direction of financial markets,” he says.
“However, market timing is very complicated and involves significant risk. Given how valuations are growing in certain parts of the market, market volatility gives investors the opportunity to rethink their portfolios and find some better investments with more attractive returns.”
How did the stock market function in 2025?
When politics was dramatic, negative emotions were contagious. We Plan to slap tariffs on overseas imports It overturned confidence and turned the first optimism about the second Trump administration into fear and skepticism.
7 magnificent alphabets googlAmazon.com amznapple aaplMeta Platform MetaMicrosoft msftnvidia NVDAand Tesla TSLAIt was the most talked about stock investment phenomenon in the past three years. I’m vulnerable today. Last month alone, Tesla stocks fell 10%, falling more than 30% per year. The property is tied to the political influence of CEO Elon Musk. It was clearly beneficial in the past, but the market is not so sure about it.
That question makes Tesla a very difficult stock. Last month alone, Morningstar analysts issued nine separate notes on Tesla stock. Today, they maintain a fair value estimate of $250 for three-star stocks, claiming that the current price is $263.55, which is slightly overvalued and is no longer a major investment opportunity.
“Tesla illustrates why the MAG7 is not a monolith,” says a note from Tatton Investment Management.
“As an automaker, we’re not purely a technology company. Yes, we’re the largest automaker by market capitalization, but not revenue. The high ratings rely on rapid sales growth, supported by high-speed technological innovation.
“Tesla’s stock price (…) soared to Trump’s election victory, but fell due to backlash against Musk’s politics. Investors have struggled to quantify these political benefits when placing a strong emphasis on Tesla.”
Tesla and the world’s auto stocks
While Japanese automakers, especially those that produce hybrids, could benefit from any Tesla backlash, their market valuations remain vulnerable to global trends.
This week, Japanese car manufacturers also felt pressure on Toyota Motor. TMHonda Motor Company HMCand Nissan Motor nssany Everything falls. Morningstar analysis suggests they are undervalued and traded on four-star territory.
Back in Europe, competitors hope that inflation will drop and lower interest rates will keep consumer spending power. Again, improving the economic situation on the continent is useful.
“U.S. tariff hikes affect premium producers, mainly BMW. BMWMercedes-Benz MBG And, not so much, Volkswagen Vowsays Robert Streda, senior vice president of European corporate ratings at Morningstar DBRS.
“However, these companies have meaningful pricing power, and they have the flexibility to pass increased tariff-related costs to consumers. Despite this, the firm’s strong financial profile can withstand increased costs caused by tariffs in the short term.”
How did the bond market function in 2025?
In the first three months of the year, bond fund manager I was forced to adjust my portfolio The revised government spending and debt plans have led to increased long-term yields and lower prices.
One of the biggest bond stories of the Quarter occurred in Germany. The end of the country’s financial obligations: “Brake” It marked a significant surge in the band’s yields. It wasn’t just the countries that witnessed volatility.
“During this period, the US Treasury yields showed volatility… Prices in Europe have risen significantly,” said Nicolas Jullien, global bond director at Candriam.
“This movement is prominent on the German curve, with a material steeper surge seen in the decade, and with both financial support being favored, European risk assets outperformed US counterparts.
For some, this quarter represented a unique opportunity –To buy price drops at the long edge of the yield curve. Other bond managers chose to sit down with volatility. Morningstar Bragazza claims there is still an opportunity here.
“This was a difficult time for bond investors who were unhappy with the UK yields that were on a roller coaster in the first quarter,” he says.
“But when looking at the yields absolute, it has become clear that the UK yields are historically very attractive. The government has to borrow higher banking fees compared to other developed markets, given that the government has to borrow more money.
“This could create a very compelling opportunity for UK bonds to be willing to hold them through volatility.”
What will the interest rate be?
Of all this noise, the central bank may be allowed to pursue a calm, surprising approach. The European Central Bank continues to cut interest rates, January And early march As expected. The Bank of England has given more attention, Only the February reduction rate. Currently, prices in the UK are 4.5%. All three main interest rates in the ECB are lower than that.
In the US, the Federal Reserve did not change interest rates at its latest meeting in March. The timing of future reductions is now very uncertain We are waiting for policymakers to see if tariffs are effective.
But the underlying story as a whole is the fear that it has long been looming heavily in the Western world’s politicians Trey before Trump’s reattack at the White House: Stagflation. The US has long been a GDP growth engine. Customs Tariff means commentators We are currently discussing the risks of a recession.
In the UK, This fear is sharp. The UK’s Spring statement was billed as a preparatory political move embedded in a better embedded defense company in the UK’s economy. Some onlookers were not convinced by it Upward growth forecast has been revised It is used to save pain. The statement was written to reassure the bond market as much as it would reassure voters. At least the bond market has been relieved for now.
“While our growth forecasts have been reduced this year, our forecasts for the future have increased to something that could be overly optimistic,” says Ronald Temple, chief market strategist at Lazard.
“Movement against increasing defence spending by the UK and other European governments should benefit growth as long as the procured weapons are manufactured in Europe.
“But defence spending alone is not enough to sustainably boost wider economic growth.”
As the second quarter of the year begins, uncertainty is rising. Q1 was not a quarter for amateurs. Not that either Q2.
