Investment Update July 2025
- ABP Team
- 7 hours ago
- 6 min read
Key Highlights:
The Trump pivot on tariffs marked a shift from a broad deal-making agenda to interim agreements, with a 10% tax retained on foreign goods consumed in the US.
The US Congress passed the “One Big Beautiful Bill Act”, featuring permanent 2017 tax cuts, $900 billion in Medicaid reductions, and stricter welfare and immigration programmes.
The S&P 500 exceeded 6,000, with the NASDAQ Composite gaining approximately 1% in June; technology and communication services led the rally, driven by investor optimism in AI and semiconductors.
US 10-year Treasury yields settled near 4.23%, a slight decline from earlier levels but still elevated in historical terms.
The US dollar experienced its sharpest first-half decline in over five decades, reflecting stated policy objectives alongside inconsistent economic signals.
European equities delivered strong results, with the Stoxx Europe 600 up 7% year-to-date, and Germany’s DAX and Spain’s IBEX 35 each advancing around 20%, supported by policy measures and earnings momentum.
In the UK, the FTSE 100 posted modest gains, but broader sentiment was constrained by rising inflation, subdued demand, and the weakest Confederation of British Industry (CBI) Growth Indicator reading since 2022.
The Nikkei 225 advanced by 6.64% in June, its highest level since mid-2024, supported by global equity strength and performance in technology shares.
Hong Kong’s Hang Seng Index recorded gains driven by strength in technology stocks, while mainland Chinese equities remained more subdued in the context of trade uncertainty.
Emerging markets outside China performed positively, with the MSCI EM ex-China Index up 10.5% year-to-date, supported by currency movements and investor sentiment.
At portfolio level, European equity positions contributed positively to returns. A 50% hedge on US dollar exposure mitigated currency losses, and short-duration fixed income holdings remained effective in the current environment.
Of course, geopolitics shapes market returns, and June has been something of a bumper month for geopolitical activity. Modelling returns and trying to time the market against the backdrop of surprise geopolitical events is something of a fool’s errand. Despite geopolitical uncertainty, strong liquidity has shielded equity markets, with investors largely ignoring negative news. However, dig deeper, and the “Trump pivot” on tariffs has triggered something of a return to a market led by fiscal dominance – a real “back to the future” playbook, which we will explore in the update that follows.
The President Trump pivot on tariffs appears to mark a retreat from the idea of “90 trade deals in 90 days”. With less than a week to go, the administration has managed only a half-hearted agreement with the UK and a de-escalation with China, and little else. The idea is that interim agreements will be sought, retaining the 10% tax on US consumers of foreign products. Savings from DOGE (Department of Government Efficiency) have been eye catching tokens in real terms, but the imposed tariffs have delivered billions of dollars of extra revenue in June.
The Senate continues to debate plans to keep an unsustainable fiscal deficit. President Trump’s “One Big Beautiful Bill Act” is a sweeping legislative package passed by the US Congress, which will not reduce the American debt burden any time soon, and explains the reason for the well-publicised Trump/Musk impasse. It aims to reshape federal tax policy, welfare programs, immigration enforcement, and government spending. Key provisions include the permanent extension of the 2017 tax cuts, $900 billion in Medicaid cuts, stricter eligibility for benefits, and a significant expansion of immigration enforcement. The bill also reduces clean energy incentives while boosting fossil fuel investments.
In June, US stock markets continued the strong rebound, building on May’s momentum. The S&P 500 surged past the 6,000 mark, while the NASDAQ Composite posted gains of around 1%. Technology and communication services led the rally, driven by investor optimism in AI and semiconductor stocks, with companies like Nvidia seeing strong performance. Meanwhile, consumer sectors lagged, reflecting shifting investor preferences. Despite the upbeat tone, analysts cautioned, that the market was trading close to fair value, with potential volatility ahead due to unresolved trade negotiations and tariff uncertainties.
Here's a visual summary of the US stock market performance in June:
Source: Alpha Beta Partners, July 2025
The economic backdrop in the world’s largest economy remains slower than the Trump Presidency would like, with signs of possible stagflation, as interest rates remain higher for longer. A replacement for Federal Reserve Chair Jerome Powell would likely be a '’Trumpian’' sympathiser, paving the way for lower interest rates in due course. However, the ongoing criticism of Jerome Powell by President Trump is notable. The yield on the 10-year US Treasury note stands at approximately 4.23%. This marked a slight decline from earlier in the month, but as a notable benchmark for debt servicing costs, it remains uncomfortably high. Meanwhile the dollar posted its steepest first-half decline in over five decades – this is a Trump goal, but clearly also reflects erratic policies from the White House.
In June, European stocks extended their strong year-to-date rally, significantly outperforming their US counterparts. The Stoxx Europe 600 rose steadily, contributing to a 7% gain for the first half of the year, while Germany’s DAX and Spain’s IBEX 35 each surged around 20% year-to-date. This performance was fuelled by controlled inflation, accommodative monetary policy, and increased public investment in infrastructure and defence. Investor confidence was further boosted by favourable valuations and strong corporate earnings, particularly in sectors like financials, industrials, and healthcare. We remain cautiously optimistic about the second half of the year.
Meanwhile at home, UK markets showed mixed performance amid persistent domestic economic headwinds. The FTSE 100 posted modest gains, supported by strong corporate earnings and a temporary boost from global trade optimism. However, broader sentiment remained cautious due to rising inflation, subdued domestic demand, and geopolitical uncertainty. The CBI Growth Indicator signalled the weakest business outlook since 2022, with declines expected across services, manufacturing, and distribution sectors. Despite a government narrative promoting growth, higher taxes take their toll. Investors remain watchful as the Bank of England continues with higher interest rates.
Japan’s stock market delivered its strongest monthly performance since early 2024. The Nikkei 225 surged 6.64%, closing at 40,487, an 11-month high. This rally was driven by a global equity upswing, optimism over potential US Federal Reserve rate cuts, and strong gains in technology stocks. Investor sentiment remained resilient, buoyed by expectations of continued monetary support and robust corporate earnings. However, importantly we note Japanese firms (notably autos) are cutting costs on exports to America, funding tariffs from profits so to maintain sales volumes. This will likely impact earnings later this year.
Source: GIR, June 2025
China and emerging markets delivered a mixed, but generally positive performance in June. The standout was Hong Kong’s Hang Seng Index, driven by a tech rally and investor optimism around firms like DeepSeek. In contrast, mainland China’s markets remained more subdued, weighed down by global trade uncertainties and domestic economic challenges. However, supportive fiscal and monetary policies—such as infrastructure investment and other state subsidies — helped stabilise forward looking sentiment.
Meanwhile, emerging markets (excluding China) posted solid gains, with the MSCI EM ex-China Index up 10.5% year-to-date. A weaker dollar, attractive valuations, and improving sentiment are collectively promoting a possible reawakening for Emerging Markets equity. We watch with interest.
Overall, despite revenue gains from tariffs, the contents of the “One Big Beautiful Bill” suggest a “switch-back” to debt-fuelled growth. While a likely settlement on a broadly “manageable” 10% tariff may dent the $36 trillion debt mountain, it is unlikely to curb it. The implications for portfolios align with a period of fiscal dominance and continued debt management, with “funding the deficit” emerging as a critical unwritten Federal Reserve goal. Ongoing repression, debasement, ample liquidity and yield curve management will help shape our asset allocations looking out from here.
At portfolio level, we enjoyed a decent half-year, despite earlier drama over tariffs, with notable gains notched up relative to peers. Our European equity allocation has earned its mettle, whilst our persistence with a 50% hedge on dollar exposures have protected against a steep fall in the American currency’s value. Fixed income positioning at the shorter duration end of the yield curve has been beneficial and is a notable differentiator over some peers. Early July marks half-time for 2025 – we have weathered some turbulence but emerged in good shape and now we’re ready to face the rest of the year with profits in hand.
Written by the Alpha Beta Investment Team.
All sources Bloomberg unless otherwise stated.
