A change in mood on global share markets 

11^th March 2025

Optimism has given way to concern as the dominant sentiment on global equity markets over recent weeks. The maintenance of buoyant investor confidence in a period of heightened geopolitical and policy uncertainty was always going to be a challenge after a period of strong share market growth. At the time of writing (11th March 2025), the United States S&P 500 Index has fallen 8.6% from its peak on the 20th February, with the market now trading at the same level it was in mid-September. As such, the post-election bounce on the U.S. share market has been fully reversed.

The share market correction has not been uniform across the globe, with European and the Chinese / Hong Kong markets holding up considerably better than the U.S. and Australia. At the epicentre of the price decline has been the U.S. technology sector, where the majority of the “Magnificent 7” stocks have experienced declines of more than 10% over the past month.

The catalyst for the sharp change in direction on share markets appears to be a combination of the following factors:

• The implementation of a program of tariffs by the U.S. Government on imports from Canada, Mexico and China, with retaliatory tariffs then announced by impacted nations. If maintained over the long term, tariffs are expected to reduce global trade and economic growth, as well as add to inflationary pressures. Although a tariff program was well flagged as being a central policy of the new U.S. administration, there was perhaps an underlying expectation on financial markets that a process of negotiation would result in the tariffs being significantly watered down or avoided.
• U.S. economic data over recent weeks has been weaker than expected, with evidence of softer consumer sentiment and spending, as well as a small decline in employment growth.
• In a recent media interview, the U.S. President, Mr. Trump, refused to rule out a U.S. recession this year.

Although the seriousness of the longer-term implications of the U.S. tariff program should be acknowledged, the recent spike in concerns over the possibility of a near term U.S. recession appear to be exaggerated. Despite some softening in growth momentum, economic conditions in the U.S. remain strong, with the most recent quarterly economic growth data showing an annual rate of expansion in excess of 2% in real terms. Unemployment remains low, corporate balance sheets are generally robust, and the financial sector is well positioned to continue to support growth via lending at interest rates now reduced due to the monetary policy easing that took place last year.

There also remains a likelihood that key elements of the tariff program will be temporary in nature, with their role as a negotiating tool being clearly apparent. Fundamentally, the Trump administration was elected as being supportive of economic growth and business profitability, and it is considered unlikely the administration will preside over a policy regime that does long lasting damage to the business sector. The new Government is expected to be highly motivated to ensure the equity market remains in a healthy state and a range of “business friendly” policy initiatives around tax cuts and deregulation are still anticipated. The recent sell-off on equity markets may increase the urgency and priority around the announcement and implementation of these policies.

History demonstrates very few examples of where specific government policies and geopolitical events have had long lasting impacts on share markets. Company earnings are ultimately what drive share market returns. There is little that has occurred over recent weeks that should be seen as changing the course of company earnings. The economic backdrop remains supportive, with the structural change driven by artificial intelligence applications still having a long runway in which to benefit shareholders and broader society. As such, the current correction appears to be sentiment, rather than fundamentally, driven. Changes in sentiment are inherently difficult to predict and the current mood may prevail for some time. However, periods of unjustifiably poor sentiment may also become the periods of best opportunities for investors.

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This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information.