alternative market update – mid July 2025

​This year has been unprecedented for global equity markets, shaped by a turbulent mix of geopolitical tensions, trade disruptions, and persistently high interest rates. Markets began 2025 on a strong footing, with equities rallying sharply in the first quarter amid optimism over disinflationary trends and accelerating gains in artificial intelligence. Investors poured into technology-heavy indices, driving major benchmarks to record highs by late January in the US. In Europe, equity markets also saw significant early-year outperformance, particularly in industrial and export-oriented sectors, as investors sought exposure beyond the tariff-sensitive US economy. However, sentiment shifted abruptly in early April when sweeping tariff announcements reignited fears of a global trade war. This triggered a swift and deep correction across global equities, erasing much of the year’s gains in a matter of days. Despite these shocks, markets proved resilient. The combination of easing inflation pressures and expectations of eventual monetary loosening helped restore confidence from mid-May onwards. The Fed maintained a cautious stance, with key policy rates remaining at multi-decade highs through the first half of the year that reflects continued concerns over wage growth and services-driven inflation. In this high-rate environment, equity risk premia compressed while real yields rose, creating headwinds for broad-based market participation. Nonetheless, AI-linked firms emerged as clear beneficiaries of the recovery rally, with strong earnings momentum, capital investment, and public enthusiasm fuelling a powerful resurgence in tech leadership. By mid-year, global equity markets had largely retraced their post-tariff losses, though underlying volatility remained elevated. While sector performance was more muted outside of technology, investor flows rebounded strongly, with active strategies seeing renewed interest amid greater dispersion in asset performance. At the same time, currency movements added complexity, particularly with the notable weakening of the USD in the first half, which bolstered non-dollar asset returns and contributed to divergent regional outcomes. Taken together, the 2025 equity market narrative so far has been one of sharp dislocation followed by a tentative recalibration, driven by the structural momentum of AI, tempered by tight financial conditions, and under constant pressure from an increasingly fragmented geopolitical landscape. The S&P 500 index started the year strong reaching new all-time highs beyond 6,000 before falling briefly below 5,000 following ‘Liberation Day’. By mid-May 2025, the index recovered fully and reached new all-time highs above 6,200 by mid-July 2025, as shown in Figure 1.

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RESEARCH PERSPECTIVE VOL. 255 July 2025 Alternative Markets Update This year has been unprecedented for global equity markets, shaped by a turbulent mix of geopolitical tensions, trade disruptions, and persistently high interest rates. Markets began 2025 on a strong footing, with equities rallying sharply in the first quarter amid optimism over disinflationary trends and accelerating gains in artificial intelligence. Investors poured into technology-heavy indices, driving major benchmarks to record highs by late January in the US. In Europe, equity markets also saw significant early-year outperformance, particularly in industrial and export-oriented sectors, as investors sought exposure beyond the tariff-sensitive US economy. However, sentiment shifted abruptly in early April when sweeping tariff announcements reignited fears of a global trade war. This triggered a swift and deep correction across global equities, erasing much of the year’s gains in a matter of days. Despite these shocks, markets proved resilient. The combination of easing inflation pressures and expectations of eventual monetary loosening helped restore confidence from mid-May onwards. The Fed maintained a cautious stance, with key policy rates remaining at multi-decade highs through the first half of the year that reflects continued concerns over wage growth and services-driven inflation. In this high-rate environment, equity risk premia compressed while real yields rose, creating headwinds for broad-based market participation. Nonetheless, AI-linked firms emerged as clear beneficiaries of the recovery rally, with strong earnings momentum, capital investment, and public enthusiasm fuelling a powerful resurgence in tech leadership. By mid-year, global equity markets had largely retraced their post-tariff losses, though underlying volatility remained elevated. While sector performance was more muted outside of technology, investor flows rebounded strongly, with active strategies seeing renewed interest amid greater dispersion in asset performance. At the same time, currency movements added complexity, particularly with the notable weakening of the USD in the first half, which bolstered non-dollar asset returns and contributed to divergent regional outcomes. Taken together, the 2025 equity market narrative so far has been one of sharp dislocation followed by a tentative recalibration, driven by the structural momentum of AI, tempered by tight financial conditions, and under constant pressure from an increasingly fragmented geopolitical landscape. The S&P 500 index started the year strong reaching new all-time highs beyond 6,000 before falling briefly below 5,000 following ‘Liberation Day’. By mid-May 2025, the index recovered fully and reached new all-time highs above 6,200 by mid-July 2025, as shown in Figure 1. Figure 1: Development and YTD of the S&P 500 Index in 2025, Source: Investing, July 2025 In early July, President Trump signed the "One Big Beautiful Bill," a sweeping reconciliation package that permanently extended the 2017 tax cuts while introducing a mix of spending reductions and targeted industrial incentives. The legislation includes significant cuts to Medicaid and foreign aid, alongside increased funding for immigration enforcement and border infrastructure. On the investment side, it introduces generous tax credits of up to 35% for domestic semiconductor and AI-related capital expenditure. While the bill is expected to bolster select sectors and reinforce Trump’s pro-growth agenda, analysts have flagged its likely contribution to the federal deficit, which could exceed $2 trillion annually by 2026 if revenue shortfalls materialise. Meanwhile, Washington is entering what has been dubbed “Crypto Week,” a key moment for digital asset legislation. Lawmakers are revisiting several bills that aim to provide long-awaited regulatory clarity. The GENIUS Act, which defines and regulates payment stablecoins, has already cleared both chambers and awaits final reconciliation. It mandates full 1:1 reserves, monthly disclosures, and limits issuance to qualified entities. The CBDC Anti-Surveillance State Act seeks to prohibit the Federal Reserve from issuing a retail central bank digital currency, citing privacy concerns. A third measure, the Clarity for Digital Assets Act, aims to delineate the SEC’s and CFTC’s roles in overseeing cryptocurrencies, especially distinguishing commodities from securities. Although the House recently blocked procedural progress on the full package, optimism remains high among industry participants that a coherent framework may yet emerge, particularly given bipartisan support for stablecoin oversight and increasing institutional interest in digital assets. Since the start of 2025, Bitcoin has surged more than 25%, rising from around $100,000 in early January to recent highs exceeding $120,000. The rally began with broad market optimism and risk-on sentiment, mirroring gains in global equities. However, from late February to early May, Bitcoin experienced a sharp drawdown of nearly 20%, driven by heightened geopolitical tensions and widespread market volatility following the announcement of sweeping US tariffs. The trend reversed in June as the Senate passed the GENIUS Act, signalling regulatory clarity for stablecoins and reigniting investor confidence. A subsequent short squeeze and over $1 billion in ETF inflows – in two subsequent days each – in July pushed Bitcoin to a new all-time high near $123,000, reaffirming its role as a macro-sensitive yet resilient asset. A detailed development of the price of Bitcoin is shown in Figure 2. Figure 2: Development and YTD of Bitcoin in 2025, Source: CoinMarketCap, July 2025 Ethereum and Solana both faced significant volatility in 2025, with sharp early-year rallies followed by deep corrections and partial recoveries. Ethereum began the year around $3,300, briefly peaking near $3,450 in January amid strong market momentum and rising Layer-2 adoption. However, it declined sharply during the tariff-driven market turmoil, dropping below $1,900 in April. A recovery followed in June, supported by the passage of the GENIUS Act and renewed institutional demand for staking-linked assets, with Ethereum stabilising near $3,000 by mid-July. Solana had an even more dramatic trajectory, starting the year near $193 and surging to a high of $250 in January on the back of explosive DeFi and developer activity. It then fell steeply to around $105 during the spring correction before rebounding in early summer. The announcement and subsequent approval of Solana spot ETFs in the US provided a strong tailwind, helping the asset regain ground and trade near $162. While both assets remain below their early-year highs, their resilience amid macro headwinds and evolving regulatory clarity underscores their continued relevance in the digital asset landscape. Figure 3 shows the development of the aforementioned cryptocurrencies throughout 2025. Figure 3: YTD Performance of Bitcoin (BTC), Ethereum (ETH), and Solana (SOL), Source: CoinMarketCap, July 2025 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Dubai and Umm Al Quwain in United Arab Emirates and Tallinn in Estonia. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). 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