Market & Strategy Update - Q2 2025
- Matthieu
- Apr 1
- 4 min read
Updated: Apr 11
In the latest edition of our Quarterly Market & Strategy Update:
Executive summary
Economy
Consensus expectations have been completely upended in Q1. US exceptionalism is in doubt, as the economy is slowing due to uncertainties surrounding Trump’s agenda, from trade policies to the rebalancing of the economy away from excessive government spending.
On the other hand, the EU is seeing a structural shift in fiscal policy combined with supportive credit growth, which increase the odds of reflation. The Chinese economy is also benefiting from rising fiscal spending and a firm commitment to stabilize the housing market.
Most major central banks remain on an easing path on the back of high trade and economic uncertainty, even though inflationary pressure is persistent.
Equities
US equities have begun adjusting to a weaker growth environment, and the realization that the US administration is not concerned by stock market weakness, at least for now.
In addition, tech hegemony is in doubt with recent developments out of China, contributing to the significant underperformance of US stocks. While a recession remains unlikely, the growth slowdown will force a continued downward shift in the still elevated profit expectations, making selling relief rallies appropriate in the US.
Investors should seek to buy weakness in international markets seeing expansionary policies. A rotation towards these markets has begun, which will see a progressive reduction of the overinflated weight of US equities in global portfolios.
Bonds
The weaker US growth environment has pushed US yields lower across the curve. They should remain under pressure with the current policy mix. But significant supply resulting from large government and corporate refinancing needs will effectively put a floor under long-term yields later in Q2.
Barring a major recession, extending duration too far at these levels is unattractive. In the EU, long-term yields should keep rising given reflationary policies. Credit spreads have widened in the US and have further to go, while the EU’s are muted; both offer little value. A weaker USD is making EM debt more attractive, and opportunities should arise in the coming months.
Currencies
The USD has seen a sharp pullback and is likely to remain under pressure. Short-term tariff-driven rallies are unlikely to be sustained given the current policy mix of the US administration.
The EUR and JPY are standing out among developed market currencies.
Commodities
A combination of factors has weighed on oil prices in Q1, leading to a successful retest of a key support. Other commodities have been quite resilient, and an exposure to this asset class remains appropriate given the inflationary backdrop.
Precious metals
Gold continues to make new record highs. The recent upward acceleration is suggestive of capitulation by western investors, which until recently had refrained from earnestly joining the party. Investors with sizable allocations should start booking some gains.
To read our complete Market & Strategy Update for this quarter
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