An Investment review of the first 6 months of 2025

We’re half way through the year and already a lot has happened which has impacted global stock markets.

In this article, Alex Thoms, Funds Specialist at Barclays, takes a look at how various countries and sectors have fared in the first six months of 2025 summarising the key events and issues and why they are important for investors.

The year started with the sell-off of shares in US growth companies – types of companies which typically reinvest the majority of their capital back into the business to support growth. The sell-off was driven by a combination of macroeconomic pressures, shifting monetary policy, and investor sentiment turning cautious after years of huge confidence in the region.

Growth companies, particularly in the technology and innovation sectors, had enjoyed a prolonged run of rising share prices fuelled by low interest rates and strong earnings. However, inflation didn’t fall back as many had expected earlier this year which meant the Federal Reserve – the US Central bank responsible for monetary policy – maintained higher interest rates for longer. This resulted in growth shares becoming less attractive in comparison to dividend-paying companies and companies which were deemed to have undervalued share prices.

The sell-off was fuelled by the overstretched valuations of the ‘Magnificent 7’ stocks – Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla – which had driven much of the US stock market’s gains over 2023 and 2024. By late 2024, the value of these seven companies, formed nearly 30% of the total value of the S&P 500 – the 500 largest companies in the US – and as a result, their performance had an exaggerated impact on the performance of the whole market. As the demand in those seven stocks soared, so did share prices. But when the first signs of weakness appeared, investors started selling out.

During the first half of this year, global investment sentiment has increasingly pivoted toward European markets. While the US grappled with trade wars and China faced economic headwinds, Europe emerged as a compelling destination for investors.

Escalating US-China tariffs pushed investors toward Europe as an alternative. The EU’s strong trade ties with both the US and Asia provided diversification benefits. Europe’s accelerated transition to renewable energy and energy independence attracted environmentally focused investors. Other defensive sectors, such as healthcare, have also been popular. Share prices of defence companies within Europe surged amid geopolitical tensions and the US telling European nations that they must increase their defence spending.

The announcement of sweeping tariffs by Donald Trump on 2 April this year triggered immediate turmoil in global financial markets, reshaping investor behaviour and economic expectations. The policy, which imposed steep import duties on key trading partners, led to a sharp sell-off in the S&P 500, marking its worst four-day decline in decades. European and Asian markets followed.

Investors rushed to safe-haven assets, pushing gold to record highs and causing wild swings in Treasury yields – the annual return offered by government bonds. The tariffs also sparked retaliatory measures, with China imposing tariffs back on the US and the EU threatening counter tariffs, further escalating trade war fears.

Sector performance diverged sharply. Luxury and auto stocks – those such as vehicle manufacturers – suffered, while defensive sectors rallied. Small businesses faced supply-chain chaos, and corporate investment stalled as the Trade Policy Uncertainty Index hit historic highs.

Though a 90-day tariff pause later in April provided brief relief, markets remained volatile. A federal court ruling in late May blocking most tariffs sparked a rally but lingering legal and geopolitical risks kept investors cautious. Long-term concerns grew over a potential global recession, especially after US GDP contracted in Q1 2025.

After a shaky start to the year the UK FTSE 100 stock market has risen in value by more than it did over the same period in the past two years. Early in the year UK share prices experienced market swings due to the fears of the US tariffs but the delay to the imposition of tariffs helped settle the storm.

The UK also signed a new trade deal with India and improved relations with the EU after Brexit, helped calm investors. The UK economy grew faster than other major economies in early 2025 and the Bank of England lowered interest rates to 4.25% in May.

The first half of 2025 saw Asia’s emerging markets deliver uneven performance. While the MSCI EM Asia Index rose, it masked stark regional contrasts. China and India drove gains, but southeast Asia lagged due to trade tensions and commodity volatility.

China’s share price rally in Q1 was fuelled by AI breakthroughs such as the emergence of DeepSeek and a $2tn debt relief package. However, US tariffs trimmed gains. Tech stocks surged but weak consumption kept retail growth low.

India’s gain reflected foreign investment inflows and supply chain shifts in Q1, though foreign outflows in Q2 caused subsequent volatility. Thailand and Indonesia faced export slumps and political uncertainty, while Vietnam benefitted from tariff-driven manufacturing relocations.

The fixed income – bond - markets have been marked by significant turbulence, driven by geopolitical tensions, shifting central bank monetary policies, and uncertainties in government financial policies.

The so-called Liberation Day tariffs announced by the Trump administration in April triggered a sharp sell-off in bonds.

Investors became nervous as they worried inflation would rise, so bond prices fell. The US Federal Reserve is also borrowing more money than it was previously leading to investors demanding higher interest rates for loans (bonds) which has caused long-term rates to increase.

The US Federal Reserve has kept interest rates high but hinted at cuts later in the year. Europe was first to lower their rates which has made European bonds more attractive because lower interest rates typically lead to an increase in bond prices.

Mortgage and car loan bonds have stayed strong throughout the year as people continue to pay their debts and riskier (high yield) company bonds did well as investors hunted for better payouts.

The first half of this year has been hectic and we have experienced global volatility across all markets. The events so far highlight the importance for investors to have a well-diversified portfolio. Things can change quickly in the financial markets and it’s nigh on impossible for most investors to keep pace with adjustments to their portfolios. This is why the case for focusing on maintaining a steady hand and sticking with a balanced portfolio of investments is stronger, than chasing the latest trend or trying to evade the latest concern.