MARKET INSIGHT – June 2025
MARKET INSIGHT
Prime Partners’ monthly analysis of global economic and financial market news.
A rebound and many questions
The months are passing quickly in 2025, and no two are alike. After a particularly difficult period for equity markets, marked by the launch of a full-blown trade war orchestrated by the Trump administration through the reintroduction of tariffs in the United States, May saw a rebound, with the S&P 500 index gaining just over 6% and once again approaching 6,000 points, a level that seemed a long way off just a few weeks ago.
Two main factors explain investors’ renewed optimism: yet another U-turn by President Trump towards China, with whom unexpected talks quickly led to an “easing” of tariffs between the two countries. The surreal levels announced by the two behemoths of world trade in April have now been reduced, for three months at least, to more reasonable levels. The second element that reassured market participants was the confirmation that artificial intelligence is not simply a stock market hype, but a real technological revolution, like the Internet and smartphones. The first-quarter results published by the big players in technology, led by Nvidia, confirm this.
As in a marriage, between the financial markets and Donald Trump it is “for better or for worse”. As we approach the halfway point of the year, investors have already experienced many emotional ups and downs linked to the US President’s numerous announcements, and the only lesson we can draw from this is that stock market gyrations will continue, and that it would be illusory to believe that we can predict them. The general macroeconomic context remains largely uncertain, and the messages being sent to investors are blurred at this stage. Many of the indicators normally used to gauge economic conditions have been disrupted by the successive tariff announcements. The quasi-emergency measures taken by many companies to limit the impact of import duties on their results before they come into force have temporarily distorted certain macroeconomic data.
The key is to remain pragmatic in the face of uncertainty, and allow the new economic landscape to take shape, particularly in terms of international trade. However, turning a blind eye and waiting is not a sound investment strategy, as patience is not the same as inaction. Beyond the tortuous question of tariffs and the final levels to which global trade will have to adapt, it seems important to focus on the American consumer, and also more broadly on the economic credibility of the United States, whose debt levels and the current condition of the greenback are somewhat worrying.
It seems important to focus on the American consumer, and also more broadly on the economic credibility of the United States
Unsurprisingly, the various indicators of consumer sentiment are poor. Indeed, it seems only logical that current sentiment surveys should highlight the uncertainty felt by a large number of Americans in the face of the various messages sent out by their President, whose list of tariffs detailed on April 2 portends a sharper economic slowdown than anticipated at the start of the year, with potential layoffs as a consequence, making it more difficult to find a job and negotiate a pay raise.
Against the backdrop of these short-term considerations, there is also the issue of the US budget deficit, whose trajectory has not changed since the arrival of the new Republican administration. Much to the displeasure of Elon Musk, whose departure as head of DOGE (Department Of Government Efficiency) looks suspiciously like an admission of impotence. The man himself recently declared that the solution to reducing US spending would ultimately lie in a sharp rise in productivity, leaving many economists scratching their heads as to how this would be achieved.
In very concrete terms, the bond markets revealed their doubts in May about the indebtedness of certain major developed countries. In Japan and the United States, for example, the auctions where governments refinance themselves by selling long-dated government bonds were not exactly a walk in the park, requiring higher yields to find takers. A glance at the level of Japanese ultra-long rates illustrates this recent tension. Moody’s downgrading the US credit rating is another sign of growing concerns about the country’s public debt.
As for Europe, May was also a good month, with the continent’s equity indices rebounding alongside their US counterparts, thereby maintaining their comfortable lead over the latter for the current year. Here again, an about-face by President Trump quickly followed a dramatic statement in which the fresh threat of 50% levies on European goods was brandished, before a pause until July was finally declared… “The art of the deal”, no doubt.
Tariffs aside, it seems likely that the ECB will cut rates again in June, this time approaching its terminal rate. However, the EU’s economic growth remains virtually stagnant, albeit in positive territory. We are paying close attention to the level of French debt, with which the bond markets could at some point become less complacent, as in the case of Japan mentioned above.
Finally, a word on China, where the latest tariff news should not obscure the relatively weak economic recovery. The long period of post-Covid doldrums, marked in particular by a severe property crisis and a bleak demographic outlook, still offers too few concrete signs of a turnaround for international investors to return to its equity markets. It is worth noting, however, that the country seems close to matching the United States in the race for artificial intelligence. It is therefore conceivable that a more sustainable revival of Chinese stocks could be underpinned by the technology sector.
This overview of the three major economic zones provides few certainties for the coming quarters, but it is important to bear in mind that equities have rebounded strongly in recent weeks and that, at this stage, the chaotic course of the trade negotiations is primarily causing short-term volatility in the markets, without necessarily condemning stocks to a sharp compression of multiples.
Bonds, meanwhile, are the area to watch closely, particularly as regards the evolution of US debt and its attractiveness to international investors. More than ever, the United States needs to be able to refinance itself smoothly over the coming quarters, without the cost of servicing its public debt spiraling out of control.
More than ever, the United States needs to be able to refinance itself smoothly over the coming quarters, without the cost of servicing its public debt spiraling out of control
Our core scenario remains that the US economy will avoid a recession in 2025, with growth remaining modestly positive. The month of May saw the possibility of a major downturn in global commerce recede somewhat, as the Trump administration seems to understand the need for continued strong trade with both China and Europe in an environment where bond market pressure on US debt has intensified.
It seems highly likely that there will be many more twists and turns in store for investors this year, from tariffs to the fate of the now famous “One Big Beautiful Bill Act”, the name given by the Trump administration to a huge reform plan including tax cuts on an unprecedented scale. Humor remains a must in Washington…
Our allocations benefited greatly from the market rebound in May, and we are keeping them unchanged. The diversification provided by the various components of our portfolios enables us to sleep soundly during periods of turbulence, without depriving us of the opportunity to take advantage of bullish phases in equities. And when it comes to those, we clearly prefer active management at this time. We maintain our exposure to various segments of the sovereign yield curve, as well as to high-quality corporate bonds. Finally, we continue to favor gold and cash, two very useful assets given the current instability in the financial markets. In the short term, stocks are likely to lack momentum, as has been the case since mid-May, now that the earnings season is over. As a result, they are losing an important source of support.
Expecting the unexpected is part of the wise investor’s guide in the Trump 2.0 era. Diversification and pragmatism are our two best allies in the current environment, and as we pointed out in this same newsletter earlier, more volatility does not necessarily mean poor performance but it does require us to keep a cool head without falling into a wait-and-see attitude. Our investment choices are clear-cut, but their weightings in our portfolios are reasonable and, above all, we continue to firmly believe in diversification.