Positive Start to the Investment Year 2025 with European Stocks Leading the Way
2025 started well on global financial markets. International stocks rose by a full 3 percent in January, bond yields were around zero, while riskier credit bonds (corporate bonds and high-yield bonds) had returns between 0.5 and 1.3 percent.
European and Nordic stocks, in particular, have had a strong start to the stock market in 2025, growing by 6.5 and 4.8 percent respectively in January. Stocks in China have also risen significantly in value. Danish stocks disappointed once again with a drop of 0.2 percent, but the trend seems to have improved at the beginning of February. The large American technology stocks – the so-called Magnificent-7 – which have performed very well in recent years, have, on the other hand, fallen somewhat.
In the bond market, the difference between short-term and long-term yields grew in January, as short-term yields dropped slightly, while longer-term yields increased a bit. Demand for corporate bonds was positive last month, even though the extra yield compared to safe government bonds is near an all-time low.
Many raw material prices increased even more in January, with the price of gold and silver rising significantly.
Why? Trump Brings Joy, Uncertainty, and Conflict Regarding the Future
Although the presidential change in the USA has led to greater financial and geopolitical uncertainty, the returns in January have been good. Threats of tariffs on trade agreements also create uncertainty among investors, as do plans for large savings in the public sector in the USA.
There is broad agreement that a global trade war will hurt the world economy, especially the stock markets. However, the market currently expects that the threats of tariffs and possible retaliations from trade partners of the USA will not be too severe. On the other hand, it is expected that Trump will lower the corporate tax rate further and remove many regulations that particularly investors in stocks appreciate.
The progress of large US technology stocks has slowed a bit. This is due to very high valuations, disappointing earnings, and news that China is developing cheaper technology models that could compete with the highly expensive American models.
Investors are therefore concerned that technology will not generate as much revenue as expected due to the tough competition from China.
The US economy continues to grow, despite some signs of weakness in the construction sector. Growth in the European economy is somewhat lower, and the same is true for inflation. As a result, the US Federal Reserve has stopped its interest rate cuts, while the European Central Bank continues its rate cuts, which benefit short-term rates in Europe and Denmark.
Everything Still Awaits Trump
Investors worldwide have been waiting eagerly to find out what policies Donald Trump would introduce after he took office again as president on January 20. Much has been revealed now, but there is still significant uncertainty regarding his real plans in the major political areas that matter for financial markets. This applies to both the handling of public savings, the use of tariffs on trade agreements, and how these will be responded to. Not least, how the EU and China will react.
It can be said that the market knows more now, but still not much. Therefore, political statements from Donald Trump in the coming time will continue to create ripples in currency, stock, and bond markets.
There will also be focus on the economic trends in the US and Europe, the monetary policy of the Fed and ECB, and how the Chinese government manages the slowdown in the Chinese economy and the serious downturn in the housing market.
Furthermore, technological development may become very important, and here are two possible scenarios:
Positive Scenario:
Most technology executives in the US do not believe that cheap Chinese technology models, such as Deepseek, will undermine their ability to generate profits. On the other hand, cheaper access to technology will increase demand, and thereby keep both profits and stock prices up.
Negative Scenario:
Many technology experts and economists believe that the US tech giants are investing too much in technology and other areas like computer chips, data centers, networks, and so on. This could be compared to the late 1990s, when large investments in the internet led to economic downturns.
Therefore, it is expected that the financial markets will closely watch Trump, technological developments, economic trends, and monetary policies of the major central banks, which will be crucial for the returns in the coming months.
