- What were the best and worst performing markets, and who were the stock market darlings and losers?
- Every member of the Magnificent Seven suffered share price losses, as defence stocks soared
- Investors warmed to China’s AI opportunity
“While the headlines were full of doom and gloom around a potential trade war and economic slowdown, investors could have still made decent money in the stock market during the first quarter of 2025,” says Dan Coatsworth, investment analyst at AJ Bell.
“Investing in European defence, construction and banking firms and Chinese tech stocks were the winning trades in the first three months of the year. In contrast, US tech was a losing trade, ending a strong run for what’s been an easy place to get rich over the past few years.
“There is a simple explanation as to why the US is still nursing an almighty hangover from 2024’s party. Euphoria around Donald Trump returning to the White House has quickly turned into fear over how his policies could dent the US economy. His persistent, aggressive stance on tariffs threatens to drive up inflation and cause businesses and consumers to curtail spending.
“When any prevailing narrative changes, investors tend to look at their portfolios to see what’s done well in the past and will lock in some profits. US shares were trading at lofty valuations and investors are no longer prepared to pay high multiples, so we’ve seen a double hit of selling and a derating in equities. This has left the US as the worst performing part of the global equity market this year and driven a rotation into other locations which are cheaper and where the outlook is starting to improve.”
The demise of the Magnificent Seven
“An incredible $2.3 trillion was wiped off the combined value of the Magnificent Seven group of mega cap US tech stocks in the first quarter of 2025. Investors who bought any of the seven stocks at the start of January and held them until the end of March would have lost money. Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla were the darlings of the stock market for a long time, but now they’ve fallen from their perch.
“How long this situation could last remains to be seen as they are still making big money and most of them have strong growth prospects well into the future. Investors might not like them today, yet these stocks have made people wealthy in the past and that status makes them natural candidates to attract widespread buying when markets are more upbeat.”
Defence stocks a-go-go
“The prospect of Germany going on a defence and construction-related spending spree has fired up investors, triggering a surge in demand for these sectors. Defence contractors such as Rheinmetall and building materials group Heidelberg were among the star stocks in Q1 as investors predicted a stronger earnings outlook.
“Commerzbank was also on investors’ shopping list as it tried to fight off takeover interest from Italian rival UniCredit and outlined opportunities to grow profits and cut costs.
“Large cap UK stocks enjoyed their moment in the sun, including a star turn by precious metal producer Fresnillo amid gold hitting new record highs, and Babcock, BAE Systems and Rolls-Royce enjoying renewed investor interest in the defence sector. Banks also did well amid the potential for interest rates to stay higher for longer.”
China fights back with AI developments
“Hong Kong saw the strongest share price action among Chinese companies rather than the mainland indices. The Hang Seng outperformed the SSE Composite and CSE 300 indices, led by investors lapping up a mixture of tech-related shares.
“The emergence of DeepSeek sent shockwaves across the global tech sector as a relatively unheard-of Chinese company showed it was possible to facilitate AI at a much cheaper cost versus Western capabilities. It put China on the map as a new force in the world of AI and implied that the Asian superpower could stand on its own two feet regarding tech.
“Alibaba hitched a ride on the new-found positivity towards Chinese tech after unveiling its own AI model.”
