ALTERNATIVE MARKETS UPDATE – MID APRIL 2025

​Last week, President Donald Trump reignited global trade tensions by continuing his tariff policy. During “Liberation Day,” the President announced a sweeping plan, imposing a baseline 10% tariff on all imports and sharply escalating tariffs on countries deemed to have unfair trade practices. For those countries, tariffs of up to 50% were announced. China was hit hardest, with tariffs reaching as high as 145%. While many countries chose to limit retaliatory measures and instead focus on reaching an agreement with the US, China imposed matching tariffs of up to 125% on US products, blacklisted several American companies, and restricted exports of key materials. The latter includes rare earth metals, which are crucial in today’s world as they are vital for many technological products. In response to global backlash, Trump announced a 90-day delay on the tariff increases for most countries (excluding China), attempting to contain diplomatic fallout while maintaining a tough stance on trade imbalances. Amid further concerns that tariffs on key growth-spurring sectors such as technology and pharma could backfire, the administration announced additional reprieve by limiting tariffs on such critical goods.

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RESEARCH PERSPECTIVE VOL. 249 April 2025 Alternative Markets Update Last week, President Donald Trump reignited global trade tensions by continuing his tariff policy. During “Liberation Day,” the President announced a sweeping plan, imposing a baseline 10% tariff on all imports and sharply escalating tariffs on countries deemed to have unfair trade practices. For those countries, tariffs of up to 50% were announced. China was hit hardest, with tariffs reaching as high as 145%. While many countries chose to limit retaliatory measures and instead focus on reaching an agreement with the US, China imposed matching tariffs of up to 125% on US products, blacklisted several American companies, and restricted exports of key materials. The latter includes rare earth metals, which are crucial in today’s world as they are vital for many technological products. In response to global backlash, Trump announced a 90-day delay on the tariff increases for most countries (excluding China), attempting to contain diplomatic fallout while maintaining a tough stance on trade imbalances. Amid further concerns that tariffs on key growth-spurring sectors such as technology and pharma could backfire, the administration announced additional reprieve by limiting tariffs on such critical goods. The first few months of 2025 were marked by slightly elevated uncertainty as initial market optimism surrounding Trump’s return to office, which was driven by expectations of pro-business deregulation and his focus on the stock market during his first term, began to fade. Yet the optimism gradually faded amid growing concerns over his aggressive trade rhetoric and unilateral economic moves. That unease erupted into a sharp spike in volatility last week after Trump’s sweeping tariff announcement. Throughout most of the initial two months, the VIX rarely moved above 20. At the beginning of March, the index increased to 30 before falling back below 20. Liberation Day caused one of the largest spikes in volatility in history. It marked the single largest daily increase in volatility and the third-largest four-day move. During the peak last week, the VIX reached heights of 60, as shown in Figure 1. The only times in recent years when the VIX was similarly high or higher were during the Global Financial Crisis in 2008 and the Covid-19 crisis in 2020. Upon Trump’s announcement of a 90-day delay in tariff implementation and the subsequent exception of core goods, markets stabilized, which led the VIX to fall back to 30. One key theme to watch is the newly ignited trade war between the US and China, as well as whether trade agreements can be reached with so many countries over the coming 90 days. Figure 1: VIX Index and Spread of Low and High Since January 2025, Source: Investing, April 2025 Global equities kicked off 2025 on a divergent footing. US stocks started the year with solid momentum, rising around 5% by the end of February as investors initially welcomed Trump's return with hopes of pro-growth deregulation and corporate-friendly policies. European equities outperformed, soaring nearly 15% over the same period, fuelled by stronger-than-expected earnings from industrials and renewed optimism around a fiscal stimulus package in the EU. In contrast, Asian markets began the year on weaker ground, weighed down by cautious sentiment around China’s slowing growth and regional trade uncertainty, but still managed to claw back losses to finish February flat. While European and Asian equities remained relatively steady through March, US markets reversed sharply, falling about 10% amid mounting concerns over Trump’s increasingly combative trade agenda and the geopolitical tensions it stoked. Last week marked one of the most volatile stretches in market history, with Liberation Day sending US equities into official bear market territory. This wave of tariffs also caused global market to decline sharply. The Nasdaq 100 and Nikkei 225 briefly fell below -20% YTD, with the S&P 500 falling to below -15% YTD. European equities “only” fell to -5% YTD, which remains a stark drop given that European equities were up more than 10% in March 2025. Only China managed to weather the storm relatively well, losing only 7%. However, the 90-day tariff delay brought a brief reprieve, triggering the third-best single-day rally in stock market history for the S&P 500. Despite the recent bounce, global equities - except for China - remain down roughly 5% since just before Liberation Day. Including the prior declines, the Nasdaq 100 and Nikkei 225 are down around 15% this year, compared to the S&P 500’s 10%, and China alongside European equities being down less than 5% in 2025 thus far. Figure 2 summarizes the development of global stock markets during 2025. Figure 2: Global Equity Performance Since January 2025, Source: Investing, April 2025 US Treasury yields have seen a notable shift in 2025, shaped by evolving rate expectations and escalating geopolitical tensions. With the Federal Reserve holding the federal funds rate steady at 4.25% - 4.50% and signalling two 25 basis point cuts over the course of the year. This resulted in stable months on the front end of the yield curve. Meanwhile, longer-dated yields gradually declined, falling by around 25 basis points from their peak in mid-January 2025 as investors priced in a softer macroeconomic outlook. March proved uneventful, with most maturities trading flat except for the end of March. In the weeks leading up to Liberation Day, yields across the curve declined by around another 35 basis points, leaving rates roughly 50 basis points lower than at the start of the year, despite the Fed not yet cutting rates. It became increasingly evident that Chair Powell was resisting pressure from President Trump to accelerate rate cuts beyond the anticipated two, reinforcing the Fed’s independence. Following the Liberation Day shock, the Treasury market experienced a dramatic flight to safety. Demand for government bonds surged, pushing yields higher by 50 basis points across much of the curve. This development is summarized in Figure 3. One key risk to monitor going forward lies in the intensifying trade conflict with China, due to China’s substantial holdings of US Treasuries, any hint of divestment or market disruption could inject further volatility into an already turbulent bond market. Figure 3: US Treasury Yields Since January 2025, Source: Investing, April 2025 Gold prices have been steadily rising throughout 2025, with one brief pause in the rally occurring in the days leading up to Liberation Day. At the time, there was cautious optimism that a diplomatic breakthrough or a de-escalation in trade rhetoric might reduce geopolitical tensions, prompting a temporary shift into riskier assets. However, such relief never materialised, and gold’s upward momentum quickly resumed. In the earlier months of the year, persistent geopolitical uncertainty remained a key driver, supported by robust central bank purchases - particularly from China and other Asian nations - as well as strong inflows into gold-backed ETFs. Similar to US Treasuries, gold benefitted from the dramatic flight to safety following Liberation Day, with investors piling into safe-haven assets amid heightened fears of a prolonged trade war. The surge in demand propelled gold to one of its best quarters in history. Gold is now up nearly 25% YTD and trades above $3,200 per ounce. Figure 4 shows gold’s surge in price during 2025. Figure 4: Gold Price and Performance Since January 2025, Source: Investing, April 2025 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Dubai and Umm Al Quwain in United Arab Emirates and Tallinn in Estonia. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). In private assets, we advise 10+ sponsors and general partners across private equity, venture capital, private credit, real estate, capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. As of 2nd February 2024, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 62.4 billion. 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