Tariff trouble
Global markets faced sustained pressure in March as trade tensions escalated. Following the imposition of tariffs on US imports from Mexico, Canada, and China earlier in the quarter, March brought additional tariffs targeting steel, aluminium and automobiles and uncertainty around pending tariff announcements on 2 April. Inflation concerns also gained traction, as tariffs raised the prospect of higher input costs at a time when inflation remains elevated across major economies. These developments contributed to swings in investor sentiment.
Europe’s fiscal transformation
Another notable development came from Europe, where fiscal policy took a historic turn. In the wake of Germany’s late February election, the newly formed coalition proposed a reform of the constitutional debt brake to facilitate greater defence spending alongside a €500 billion infrastructure fund. At the EU level, the Commission proposed that member states could substantially boost defence spending without breaching deficit rules. European Commission President Ursula von der Leyen also outlined an €800 billion initiative aimed at enhancing the region’s defence capabilities. These moves signal a new era of fiscal engagement, with potential implications for European growth and investment prospects.
Equity markets react to uncertainty
Equities pulled back in March as concerns around geopolitical tensions, growth and inflation weighed on sentiment. The US S&P 500 index declined 6%, led by a sharp sell-off in technology stocks. The so-called “Magnificent 7” shed 21% from their December highs, ending the quarter down 16%. New Zealand’s NZX 50 also declined, down 3% for the month. European equity markets, however, fared far better, thanks to the continent’s new fiscal direction and investor rotation out of US markets. The result was a striking divergence in returns, marking the largest quarterly performance gap between US and European equities in a decade—and the biggest relative underperformance of the US market against global peers in 23 years.
Mixed signals from bond markets
In fixed income markets, bond yields reflected a changing narrative. In the US, Fed Chair Jerome Powell struck a more dovish tone, leaving open the possibility of rate cuts and signaling concern over slowing growth. This led to a drop in 10-year Treasury yields, which ended the month at 4.2%, down 36 basis points from the start of the year. Meanwhile, European bond markets responded to the region’s new fiscal agenda. German 10-year bund yields surged, with a single-day increase of 30 basis points on March 5—the largest jump since German reunification in 1990—finishing the month at 2.7%.
Looking ahead
As we move further into 2025, the outlook remains uncertain, with government policy shifts likely to continue influencing market dynamics. However, the turbulence also reinforces the value of a well-diversified investment strategy. By maintaining a long-term focus and avoiding reactive decision-making, investors are better positioned to ride out short-term noise and benefit from opportunities as they arise.
At Aurora Capital, we remain committed to navigating these conditions with care, discipline, and a focus on your financial well-being. Please reach out to your adviser if you’d like to discuss how your portfolio is positioned in light of these developments, or contact our Client Care team.
Monthly Market Minute
Watch our Chief Investment Officer, Sean Henaghan, break down for the March update in a short video below, including what it means for your KiwiSaver and how Aurora is positioned.
DISCLAIMER
This information is provided in a general nature only and should not be construed as or relied on as financial advice. This is not a recommendation to invest in a particular financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any investment decisions.
Past performance is not a reliable indicator of future performance. The value of your investment may go up and down.