The beginning of the year was a tumultuous time for the markets, with the S&P 500 experiencing its largest quarterly decline since 2022. Market volatility was largely driven by aggressive tariffs initiated by President Trump, which extended beyond his first term, with reciprocal tariffs looming on the horizon. The release of DeepSeek’s AI model early in the quarter also raised concerns about the valuations of big tech companies, leading to a downturn in the Magnificent 7’s performance.
Despite the challenges, European equities outperformed thanks to a significant shift towards higher defense spending. This shift resulted in the biggest performance gap between the STOXX 600 and the S&P 500 in a decade. Gold prices also saw a significant increase, marking their largest quarterly gain since 1986.
The overall market sentiment leaned towards risk-off, with discussions around stagflation becoming more prevalent. Concerns about inflation and a potential recession added to the uncertainty, contributing to the S&P 500’s worst quarterly performance since 2022.
On the positive side, European assets experienced a boost from a fiscal stimulus focused on defense spending. Central banks across countries maintained divergent policies, with the Fed signaling potential rate cuts while the ECB and Bank of Japan made rate adjustments.
In terms of asset performance, gold prices surged to record highs, while US Treasuries benefited from the risk-off sentiment. On the other hand, US equities, the US Dollar, Euro sovereign bonds, and cryptocurrencies all faced losses during the quarter.
The article goes on to highlight the best and worst performing assets during the quarter, with visuals depicting the market trends. Overall, the first quarter of the year was marked by uncertainty and volatility, with various factors influencing market movements.