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With Q1 behind us, what’s in store for the next three months?

2 April 2025

Mark Lister

The first quarter of 2025 is behind us and if it’s any guide of things to come, we’re in for an eventful year.

The last three months have been punctuated by policy uncertainty, shaky confidence readings and volatile markets.

After cheering a strong victory for Donald Trump at last year’s presidential election, investors have turned much more cautious since his inauguration.

Trump is a pro-growth, business-friendly leader who wants to reduce taxes and cut regulation.

However, his desire to use tariffs to level the international trade landscape could offset many of those positives.

This shouldn’t come as any great surprise, although markets might’ve underestimated how much weakness he is willing to tolerate as he pursues this.

The S&P 500 index in the US fell 4.6 per cent during the March quarter, its biggest fall since 2022.

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The high-flying “Magnificent 7” group of stocks drove the sell-off, declining 14.8 per cent and in contrast, the rest of the index was unchanged.

Other sharemarkets performed better, with European shares rising 5.7 per cent, the UK up 5.0 per cent and emerging market equities adding 2.4 per cent.

Conservative assets also held their own, with New Zealand fixed income and US Treasury bonds both rising during the quarter.

Gold also continued its march higher, surging another 19.0 per cent to fresh all-time highs.

Local shares fared poorly, with the NZX 50 index down 6.4 per cent, its worst quarter in almost three years.

Interestingly, most of that weakness came in February amidst disappointing earnings and outlook statements, rather than during March when trade tensions were rattling global markets.

Like the US, there were some outsized individual declines that weighed on the index.

Market heavyweight Fisher & Paykel Healthcare (which has manufacturing facilities in Mexico and sells a lot of products into the US) was down 12.7 per cent, while Spark continued its slump with a 26.1 per cent decline.

Infratil ended the quarter 17.6 per cent lower as the US tech sell-off dampened the mood toward its data centre exposure.

A large capital raising from Ryman Healthcare put added pressure on the local market, with investors freeing up capital from elsewhere to participate.

Looking ahead to the next three months, it doesn’t feel like we’ll see a let-up in the action.

Tariffs will remain in focus and investors will be monitoring economic activity closely.

Global growth has been solid and it’s confidence that has tumbled, but the latter will begin to impact the former if consumers and businesses remain downbeat for too long.

Central banks will find themselves back in the spotlight, with investors expecting rate cuts to resume in the US, UK, Europe and Australia during the June quarter.

Some policymakers (such as Jerome Powell at the Federal Reserve) could find themselves in an awkward position, as growth slows but inflation expectations push higher.

The picture looks clearer here in New Zealand, with another 25-basis point cut to the Official Cash Rate (OCR) seemingly assured next week and then again in May.

That would see the OCR at 3.25 per cent by mid- year, the lowest in two-and-a-half years and close to what most consider to be neutral.

Corporate earnings will soon be back in the spotlight too, with the US banks set to kick off the quarterly reporting season next week.

Analysts are upbeat about where profits are headed, with year-on-year earnings growth for the S&P 500 forecast to be 7.3 per cent in the March 2025 quarter.

For 2025 overall, analysts expect a healthy 11.5 per cent increase, which means updates from management will be as important as ever.

Here at home, the next batch of results are due in May when the likes Mainfreight, Infratil, Ryman Healthcare and Fisher & Paykel Healthcare announce full-year earnings.

Across the Tasman, there’s an election campaign to follow with Australia set to vote on 3 May.

The polls are close, and Anthony Albanese’s Labor Party is at risk of being the first one-term government since 1931.

It’s been uncertain start to the year, and this market dynamic is likely to continue over the short-term.

In the 33 previous corrections (declines of 10 per cent or more) since 1960, the S&P 500 has avoided a bear market (a 20 per cent decline) 70 per cent of the time.

The average decline on those occasions has been 14.2 per cent, with the weakness typically lasting four months before a recovery takes hold.

To reach that point, the index would need to fall another 6.1 per cent from end of March levels.

Uncertainty could prevail for a bit longer, although this might be an environment which ultimately throws up some attractive opportunities.

Investors will need to be on their game though, and willing to sit through more volatility than usual to take advantage of this.

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Mark Lister

Mark Lister

Investment Director
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Market Insights enewsletter

Keep up to date with our fortnightly Market Insights enewsletter. Our research team provide timely and regular commentary and analysis on market developments, understanding investment jargon, and the impact of current events.

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