The first year of President Donald Trump’s second term has been marked by significant volatility, heavily influenced by his unexpected policy decisions that have kept investors on high alert. Since his inauguration on January 20, 2025, Trump’s fast-paced policy shifts have resulted in substantial fluctuations in financial markets.
A pivotal moment occurred on April 2, when Trump announced sweeping tariffs on various nations during a speech he dubbed “Liberation Day.” This announcement initially caused a sell-off in the stock market, raising alarms among investors. However, as the year progressed, the negotiation of tariff deals with multiple trading partners began to mitigate some concerns, allowing markets to bounce back. Positive developments in trade, robust earnings reports, a surge in investor enthusiasm for artificial intelligence, and anticipated interest rate cuts contributed to a significant recovery in stock prices.
In the UK, the FTSE 100 index has seen an impressive gain of nearly 20% over the past year, while the pan-European STOXX 600 index has risen by 16%. Asian markets also performed well, with Hong Kong’s Hang Seng index climbing over 35% and Japan’s Nikkei 225 surging by 39%. In the United States, the S&P 500 has increased nearly 17%, the tech-heavy Nasdaq Composite has jumped almost 22%, and the Dow Jones Industrial Average has risen over 14%.
Financial analysts acknowledge the impact of Trump’s policies on a wide range of industries and geopolitical dynamics. Dan Coatsworth, head of markets at AJ Bell, emphasized that while businesses have faced challenges, they have adapted to the evolving landscape, leading to increased investor confidence in their potential for growth.
The year has also seen heightened geopolitical tensions, notably due to US military actions in Venezuela. Trump has threatened new tariffs on eight European countries if a deal regarding his proposed takeover of Greenland is not finalized.
Reflecting on the year, there have been notable trends among different stocks. The pressure on European allies to increase defense spending has benefitted companies in the defense sector. NATO members committed to raising their defense expenditures to 5% of GDP by 2035, prompting investments to flow into defense-related stocks. For instance, BAE Systems has appreciated by 71.5% within the year, and Rolls-Royce has soared by 117%. Babcock International and Chemring Group have seen even more dramatic increases, at nearly 195% and 64% respectively.
Trump’s suggestion for a significant increase in US defense spending has further underscored the trend, with European stocks like Germany’s Rheinmetall seeing a 182.5% increase over the year. Coatsworth noted that exposure to this sector has also provided substantial support for companies such as Salzgitter, which has appreciated by 192% after a military-use product was approved.
Amid rising geopolitical and economic uncertainty, gold has emerged as a safe-haven investment, pushing prices to record highs. Coatsworth commented that the chaos of Trump’s second term has played a significant role in driving gold prices upward. Companies in the gold mining sector, like Fresnillo, have enjoyed remarkable gains, with shares up 491%, while Endeavour Mining has risen nearly 169%.
Conversely, sectors focused on consumer goods and growth have faced challenges. Notable examples include Adidas, which has tumbled over 37%, and Ferrari, down nearly 31%. The performance of German software giant SAP and Dutch payment company Adyen has also decreased, emphasizing the difficulties faced by high-valuation growth companies in the current climate of trade uncertainty and rising interest rates.
Analysts suggest that 2025 favored sectors tied to security, infrastructure, and financial resilience, while those sensitive to valuation pressures, particularly consumer cyclicals, struggled. As Trump’s second term evolves, the market continues to adapt to his unpredictable policies and their ripple effects across various sectors.
