Investment Market update: May 2025

After Donald Trump announced sweeping trade tariffs on “Liberation Day”, find out how markets performed in April 2025.

5 min read

Markets experienced heightened volatility in April following Donald Trump’s announcement of new US trade tariffs on 2 April – dubbed “Liberation Day.”

After initially dipping, stocks later recovered much of their losses as President Trump softened his stance by announcing a 90-day pause on many of the tariffs, along with the removal of tariffs on various electronic goods.

Whilst this article primarily focuses on April 2025 market news, there are references to events and market performance from previous months.

US

The US inflation rate fell for a second consecutive month in March, falling to 2.4% – its lowest level since September – down from 2.8% in February. The decline was largely driven by lower petrol and fuel oil prices¹.

Amid ongoing market volatility in the wake of the US trade tariffs and concerns regarding the potential for stagflation, the Federal Reserve held interest rates between 4.25% – 4.5%, where they have been since December².

The US economy shrank at an annualised rate of 0.3% in Q1 of 2025, marking the first decline since early 2022 and following 2.4% growth in the previous quarter. A key factor behind the slowdown was a 41.3% rise in imports, driven by businesses and consumers stockpiling goods ahead of anticipated cost increases due to the new tariffs³.

The S&P 500 Index lagged behind many global peers in April, ending the month down 0.7%. Energy and healthcare were the weakest-performing sectors. The index remains the worst performer in the year-to-date, with a decline of 4.9%⁴.

UK

In the UK, inflation was at 2.6% in the 12 months to March 2025, easing from 2.8% in February. The largest downward pressures came from lower prices in recreation and culture, as well as motor fuels⁵.

Despite inflation remaining above the target level of 2%, the Bank of England cut the base rate from 4.5% to 4.25% in May in a bid to cushion the economy against the impact of the US trade tariffs⁶.

UK monthly GDP is estimated to have grown by 0.5% in February 2025, rebounding from no growth in January. Over the three months to February, real GDP rose by 0.6% compared to the previous three-month period, driven largely by a strong performance in the services sector⁷.

In April, the UK FTSE All-Share Index slipped by 0.2%, but remains up 4.2% in the year-to-date⁸.

Europe

Inflation in the Euro Area held steady at 2.2% in April 2025, unchanged from March and still slightly above the European Central Bank’s 2% target⁹.

Euro Area GDP grew by 0.4% in the first quarter of 2025, up from 0.2% growth in the previous quarter¹⁰.

The European Union suspended retaliatory tariffs on steel and aluminium in a bid to foster negotiations with the US administration. This, along with progress in Germany toward forming a new government, offered some relief. However, the MSCI Europe ex-UK still declined by 0.4% in April, though it remains the strongest performer in the year-to-date, up 5.9%¹¹.

Asia

China’s consumer prices fell by 0.1% in March, marking a second consecutive monthly drop. However, the decline was less significant than February’s 0.7% fall, helped by a smaller drop in food prices¹².

Japan’s inflation rate eased slightly to 3.6% in March 2025, down from 3.7% in February and marking the lowest level since November. Food price increases were the slowest in three months, while electricity and gas prices continued to decline¹³.

After a sharp downturn earlier in the year, Japanese stocks rebounded to become relative outperformers in April, posting a modest gain of 0.3%. The MSCI Asia ex-Japan Index also performed well, returning 0.8%, making it the second-best performer in April after the MSCI Emerging Markets Index¹⁴.

What this means for you

As US and European markets experienced declines in April, Asian and Emerging Markets demonstrated growth. With ongoing uncertainty surrounding US trade policy likely to sustain market volatility, diversification remains a crucial strategy for mitigating risks linked to these policy shifts. Taking a long-term view further strengthens this approach, allowing investors to navigate short-term fluctuations while capitalising on broader economic trends and sustainable growth opportunities.

Please note: This guide is for general information only and does not constitute advice. The information is aimed at retail clients only.

The content of this guide was accurate at the time of writing. While information is considered to be true and correct at the date of publication, changes in circumstances, regulation, and legislation after the time of publication may affect the accuracy of the guide.

Sources:

FP2025-236

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