ALTERNATIVE MARKETS UPDATE – MID MARCH 2025

In his current presidency, President Trump's aggressive tariff strategy has significantly impacted financial markets, introducing heightened volatility and uncertainty. The new administration has already introduced unprecedented tariffs within its first two months. Figure 1 provides an overview of currently imposed and threatened tariffs. These tariffs imposed by the US on other countries has also led to significant retaliations from those countries, which exacerbates the issue even further. The fact that the Trump administration also threatens tariffs nearly on a daily basis further bolsters global uncertainty. These tariffs have also disrupted established trade relationships and supply chains, leading to increased costs for businesses and consumers alike. Investors are now grappling with the potential for slower economic growth, as higher import costs contribute to rising inflationary pressures. Market participants also showed some optimism on a Trump administration for the anticipated resolutions of ongoing wars, especially in Israel and the Ukraine. While most successful in Israel, the situation between Russia and Ukraine remains highly unstable. These developments have undermined investor confidence, compelling market participants to reassess risk exposures and seek refuge in more stable assets. Consequently, the financial markets are navigating a complex landscape, where protectionist policies challenge the principles of free trade that have long underpinned global economic growth.

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RESEARCH PERSPECTIVE VOL. 247 March 2025 Alternative Markets Update ​In his current presidency, President Trump's aggressive tariff strategy has significantly impacted financial markets, introducing heightened volatility and uncertainty. The new administration has already introduced unprecedented tariffs within its first two months. Figure 1 provides an overview of currently imposed and threatened tariffs. These tariffs imposed by the US on other countries has also led to significant retaliations from those countries, which exacerbates the issue even further. The fact that the Trump administration also threatens tariffs nearly on a daily basis further bolsters global uncertainty. These tariffs have also disrupted established trade relationships and supply chains, leading to increased costs for businesses and consumers alike. Investors are now grappling with the potential for slower economic growth, as higher import costs contribute to rising inflationary pressures. Market participants also showed some optimism on a Trump administration for the anticipated resolutions of ongoing wars, especially in Israel and the Ukraine. While most successful in Israel, the situation between Russia and Ukraine remains highly unstable. These developments have undermined investor confidence, compelling market participants to reassess risk exposures and seek refuge in more stable assets. Consequently, the financial markets are navigating a complex landscape, where protectionist policies challenge the principles of free trade that have long underpinned global economic growth. Figure 1: Summary of Trump’s Tariffs, Sources: Various News Articles, March 2025 These protectionist measures have disrupted global supply chains, increased input costs for American companies, and dampened investor sentiment. Especially US equities suffered from the elevated uncertainty and volatility, which can largely be attributed to Trump’s tariff strategy. Since mid-February 2025, US equities have seen significant corrections amid fading optimism of Trump’s inauguration and the anticipated equity rally, given that this was an important focus of Trump in the past. However, over recent months, Trump has reiterated several times that his focus lies on reducing interest rates, and not on the stock market. Figure 2 shows the 10%+ drop of the S&P 500 and Nasdaq 100 over the past month. Alongside this decline, volatility in equities increased significantly. Since the peak in US equities in 2025, the VIX has increased by a whopping 75%. While large, current volatility levels are still far away from prior crises. In contrast, European markets have benefited from increased fiscal spending, particularly in defence and infrastructure, as nations respond to shifting geopolitical dynamics. To date, the Euro Stoxx 50 is up more than 10%, despite the recent correction. Additionally, the European Central Bank's accommodative monetary stance has provided further support to the region's equities. Consequently, investors are increasingly reallocating capital towards European assets, seeking stability amidst U.S. market turbulence. Figure 2: YTD Performance of S&P 500, Nasdaq 100 & Euro Stoxx 50 Alongside the VIX Index, Source: Investing, March 2025 In 2025, the private equity industry has faced its first year-over-year decline in assets under management (AuM) since Bain began measuring the industry in 2005, registering a 2% drop. This rare contraction underscores the liquidity pressures stemming from an accumulation of unsold assets, a byproduct of sluggish dealmaking in previous years, which has constrained distributions to LPs. With fewer capital returns to investors, fundraising has also decelerated, as LPs hesitate to commit new capital amid uncertain exit conditions and slower distributions. However, there are promising signs of recovery. Deal activity has recovered from its recent slump, which should resolve the issue of slowed distributions to LPs. This should also result in increased fundraising. The current equity market poses another potential issue for the industry. If public equities continue their downward trajectory, investors may adopt a prolonged risk-off stance, further dampening private equity’s recovery by limiting new capital inflows and prolonging the current slump. As a result, the industry's rebound remains contingent on broader market stability and a sustained improvement in liquidity dynamics. The recent equity sell-off and heightened market volatility have driven investors toward safe-haven assets, particularly U.S. Treasuries. As capital flowed into government bonds, U.S. Treasury yields declined, reflecting increased demand for risk-off assets. As shown in Figure 3, the 10-Year US Treasury yield fell from nearly 4.8% to 4.2%, which recently increased to slightly above 4.3%. This trend has been further reinforced by growing expectations that the Federal Reserve will cut interest rates more aggressively than expected earlier in 2025. Meanwhile, gold has surged to a record high of $3,000 per ounce, fuelled by the same flight to safety and persistent market uncertainty. The combination of elevated volatility and declining bond yields has made gold even more attractive, as lower yields reduce the opportunity cost in comparison to gold. This dynamic suggests that unless risk sentiment improves, gold could remain in high demand as a preferred hedge against financial instability. Figure 3: US 10-Year Treasury Yield and Gold YTD, Source: Investing, March 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. 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