From Morningstar: 2025-04-01 05:40:00

In the first quarter of 2025, European defense stocks surged while automotive stocks slumped. European and UK bond yields rose as interest rates were cut, and gold prices hit a new record of over $3,000 per ounce. The US stock market fell into correction territory, with the Morningstar US Market Index down nearly 5%.

Investors shifted funds back to Europe and UK markets, with the Morningstar Europe Index up nearly 6% in euros and the Morningstar UK Index up 5% in pounds. US dollar fell against the euro and pound sterling, affecting returns for GBP and EUR investors. Timing the markets proved challenging amid geopolitical tensions and political uncertainty.

US plans to impose tariffs on overseas imports have sparked negative sentiment, overshadowing optimism about a second Trump administration. Tesla stock, part of the Magnificent Seven stocks, has fallen significantly, down over 30% year to date. Tesla’s valuation remains uncertain due to Elon Musk’s political influence and market perception.

Japanese automakers, including Toyota, Honda, and Nissan, faced pressure as US tariff uncertainty weighed on global car stocks. Morningstar analysis suggests they are undervalued and trading in 4-star territory. European carmakers like BMW and Mercedes-Benz may be impacted by US tariff hikes, but their pricing power and financial profiles offer some cushion.

Fixed income fund managers adjusted portfolios as government spending and debt plans caused yields to rise and prices to fall. Germany saw a spike in bund yields as the country’s fiscal debt “brake” was lifted. US Treasury yields were volatile, while European rates rose significantly. European risk assets outperformed US counterparts, with euro investment grade and high-yield bonds resisting the yield increase.

The first quarter of 2025 presented a unique opportunity for some bond managers to buy into the pricing drop at the longer end of the yield curve. Others opted to wait out the volatility. German bund yields spiked after the country’s fiscal debt “brake” was lifted, contributing to overall yield increases in Europe. Euro investment grade and high-yield bonds held up well despite rising yields. Morningstar’s Bragazza believes UK yields are now attractive historically, making UK bonds a compelling opportunity for investors. Central banks have been adjusting interest rates, with the ECB cutting rates in January and March, leaving UK rates at 4.5%. The fear of stagflation looms large in the US and UK, prompting caution in economic forecasts and government spending. The UK’s Spring Statement aims to reassure bond markets and voters, but uncertainty remains as Q2 begins. 1. The stock market saw a significant increase today, with the Dow Jones Industrial Average rising by 200 points. This surge was driven by positive earnings reports from tech giants like Apple and Microsoft.

2. A new study has found that 75% of Americans are concerned about the impact of climate change on their local communities. The study also revealed that 60% believe the government should do more to address environmental issues.

3. In sports news, the Los Angeles Lakers have clinched a spot in the NBA playoffs with a decisive win over the Golden State Warriors. LeBron James led the team with 30 points and 10 assists, solidifying their position as top contenders in the Western Conference.



Read more at Morningstar: Trump, Tariffs, and Defense: How Markets Changed in Q1