Market Outlook: Are Global Equities at a Turning Point?

Improved sentiment and trade developments lift markets, but economic risks remain in focus

Markets Show Resilience Amid Economic Uncertainty

Despite a rocky start to 2025, marked by policy uncertainty and slowing US growth fears, global equity markets have shown unexpected resilience in recent weeks.

The S&P 500 is down just 1.3% year-to-date, while the NASDAQ Composite has dipped by 3%. In contrast, the Russell 2000—more exposed to cyclical sectors—has slumped 8.5%, highlighting continued investor caution around economically sensitive stocks.

Positive Sentiment Driven by Trade and Economic Data

According to Wolfe Research, the recent stabilisation in markets is largely due to:

• Improved trade outlook, particularly with the US postponing tariffs on EU goods
• Stronger-than-expected economic indicators, particularly in soft data sets
• Slight uptick in investor sentiment, which had been highly negative earlier in the year

These factors have helped counterbalance growing fears of a potential recession and long-term fiscal imbalances in the US.

Bond Market Volatility Signals Fiscal Worries

Wolfe Research warns that the US fiscal outlook remains a key risk. Rising concerns about unsustainable federal deficits have triggered a response from so-called “bond vigilantes”—investors who sell off government bonds in protest of fiscal mismanagement.

“We remain defensively positioned as stocks are likely to be hypersensitive to economic data and interest rate moves in the months ahead,” Wolfe analysts stated.

Tariff Delay Sparks European Market Rally

Markets received a further boost after US President Donald Trump announced a delay in imposing a 50% tariff on EU imports, pushing the deadline to 9 July following discussions with European Commission President Ursula von der Leyen.

Trump commented:

“She said she wants to get down to serious negotiation… I agreed to do that.”

In response, the STOXX 600 rose by 1%, while Germany’s DAX gained 1.6%, reflecting renewed optimism over transatlantic trade relations.

Eyes on US Economic Acceleration

Although sentiment indicators have marginally improved, Wolfe Research remains cautious. Analysts suggest that a clear reacceleration in economic growth will be necessary before markets shift towards a more risk-on, cyclical investment strategy.

“We’re encouraged by better sentiment surveys, but we need stronger economic signals to change positioning,” they noted.

Market Turning Point or Temporary Bounce?

• US equities show resilience, despite weak economic outlook
• European markets rally on tariff delay and trade optimism
• Investor sentiment improves, but remains fragile
• Bond market volatility highlights fiscal concerns
• Analysts urge caution, awaiting clearer growth momentum

With the US markets closed for Memorial Day and trading resuming today, investors will closely watch upcoming economic data and geopolitical developments to determine whether this is a short-term bounce or a longer-term turning point for global markets.

Sources: (Investing.com, Reuters)