From Positive Returns in January and February to a Market Decline in Early March
In January and February 2025, returns on both equity and bond markets were positive, but in March, the market quickly turned the other way with a decline in prices. Financial markets change as a whole, and it can happen several times a year that the market goes up and down like this.
Global equities returned 2.3% in the first two months of the year, and after a strong February, Danish equities increased by 4.2%, while Nordic equities rose by as much as 10%. Besides Nordic equities, European and Chinese stocks have also grown significantly, while the large American technology stocks – the so-called Magnificent-7 – which have declined significantly in recent years, have fallen.
The drop in the dollar has also impacted equity returns, as American equities, traded in dollars, make up 65% of the global equity index.
Interest rates, particularly on short-term bonds, dropped slightly at the start of the year. And despite historically low yields compared to safe government bonds, there was significant demand for corporate bonds.
These conditions led to returns of 0-2.6% on various bond types. In March, the trend reversed. Now, there is a decline in both equity and bond markets, and the strong returns from the beginning of the year have turned negative. At the same time, changes have occurred, especially in equity markets, with certain stocks performing better now; for example, European, Chinese, value stocks, and defensive stocks, which are less sensitive to economic fluctuations, while particularly the large American technology stocks are dragging down the market.
Why? Trump/Musk Turmoil and Changes in the Stock Market
Several reasons seem to explain the market decline and the changes in equity markets:
- The American economy shows signs of weakness. This is reflected in several key indicators, and many companies have announced that things aren’t going as expected in the first quarter of the year.
- One of the main causes of the unexpected weakness in the USA is undoubtedly the chaotic economic policies of President Trump, who frequently announces tariffs. Geopolitically, President Trump is also heading towards a breakdown in relations with several countries, and this turmoil dampens business confidence, affecting investment and global growth, corporate earnings, and thus equity prices.
- Uncertainty about AI: Despite an exceptionally strong earnings report from Nvidia in February, investors still question whether the massive investments, particularly in the U.S. technology sector for AI hardware and AI models, are sound, or if a large investment slowdown is ahead.
While the outlook for the U.S. is weakening, conditions are improving in Europe and China. Not least, because the upcoming government in Germany (CDU/CSU and SPD) plans a huge growth and defense package. However, it is still uncertain whether this will be approved, but if it happens, it would be very positive for German and European equities.
Investors are now focusing on cheaper value stocks, also called “value stocks,” outside the U.S., and at the same time, there is growing concern about growth, with increasing interest in stocks that are less affected by economic fluctuations.
While the unusually large German growth package made a positive impact on equity markets, there is also a large interest rate gap and falling prices in the bond markets. If the package is approved, it could lead to increased growth, inflation, and public debt in Germany, which would negatively affect the bond markets.
What Now? Politics/Geopolitics, Key Indicators, and Companies in Focus
Politics has a significant influence on financial markets these days, and with numerous statements, tariffs, the war in Ukraine, and other factors in mind, it is likely that this will continue in the near future.
If stability returns, it could ease market concerns, while attention will also be focused on whether the growth package in Germany will be approved.
Investors will also be keeping an eye on AI development, economic fluctuations, and the monetary policies of large central banks in the near future, and these, along with the upcoming first-quarter earnings reports from companies, will be crucial for future returns.