alternative market update – end July 2025

​Over the past few weeks, the US has taken significant steps to de-escalate its global trade war by securing major trade agreements with both Japan and the European Union. The deal with Japan reduced proposed tariffs to a uniform 15% in exchange for a substantial investment package and increased US market access. However, the more consequential development was the US–EU agreement announced in late July, which imposed a 15% baseline tariff on most EU exports, which is lower than the threatened 30–50%, but still above pre-conflict levels. In return, the EU committed to $750 billion in US energy imports and $600 billion in investments, along with pledges related to defence procurement. While the deal includes zero-tariff provisions on sectors like semiconductors and aerospace, steel and aluminium tariffs remain unresolved. European leaders framed the agreement as necessary to avert deeper economic damage, though criticism emerged that the terms overwhelmingly favoured US interests. Industry groups in Germany, particularly automakers, expressed concern over the financial impact of sustained tariffs. Still, financial markets reacted positively, viewing the agreement as a stabilizing force amid broader geopolitical uncertainty. Together, the US deals with Japan and the EU mark a temporary resolution to tariff escalation, though they leave structural imbalances largely intact.

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RESEARCH PERSPECTIVE VOL. 256 July 2025 Alternative Markets Update Over the past few weeks, the US has taken significant steps to de-escalate its global trade war by securing major trade agreements with both Japan and the European Union. The deal with Japan reduced proposed tariffs to a uniform 15% in exchange for a substantial investment package and increased US market access. However, the more consequential development was the US–EU agreement announced in late July, which imposed a 15% baseline tariff on most EU exports, which is lower than the threatened 30–50%, but still above pre-conflict levels. In return, the EU committed to $750 billion in US energy imports and $600 billion in investments, along with pledges related to defence procurement. While the deal includes zero-tariff provisions on sectors like semiconductors and aerospace, steel and aluminium tariffs remain unresolved. European leaders framed the agreement as necessary to avert deeper economic damage, though criticism emerged that the terms overwhelmingly favoured US interests. Industry groups in Germany, particularly automakers, expressed concern over the financial impact of sustained tariffs. Still, financial markets reacted positively, viewing the agreement as a stabilizing force amid broader geopolitical uncertainty. Together, the US deals with Japan and the EU mark a temporary resolution to tariff escalation, though they leave structural imbalances largely intact. Since the start of 2025, the euro has trended higher against the US dollar, rising from around $1.03 in mid-January to a peak above $1.18 in early July. This appreciation was driven in part by President Trump’s repeated calls for a weaker dollar to boost US exports, which he pursued through tariff threats, direct criticism of the Federal Reserve, and aggressive trade negotiations. Throughout the spring and early summer, the EUR-USD pair traded within a stable range of $1.13 to $1.18, with the mid-point centred around $1.15 to $1.17. However, late July brought a sharp reversal in momentum, with the euro falling from above $1.17 to near $1.15 within days, as shown in Figure 1. This decline was triggered by the announcement of the US–EU trade agreement, which introduced a 15% baseline US tariff on most EU exports and raised concerns over the competitiveness of European industry. As a result, investors shifted back toward the dollar, viewing the deal as a structural disadvantage for the eurozone. Figure 1: Development of the EUR-USD Exchange Rate Since the Beginning of 2025, Source: Investing, July 2025 In the past two weeks, the S&P 500 has surged to fresh all-time highs, surpassing 6,400 amid renewed optimism around global trade stabilization and continued AI-driven earnings strength. Figure 2 shows the tumultuous development of the S&P 500 and the many new all-time highs the index reached. The shift was largely driven by easing macroeconomic fears following the US–EU and US–Japan trade agreements, which helped restore investor confidence in the resilience of global supply chains and corporate margins. Compared to earlier in the year, when gains were concentrated in a narrow set of AI-related mega caps, the current rally has shown broader participation, with cyclical sectors and industrials rebounding strongly. Improved earnings guidance, a softer US dollar, and declining volatility metrics have also contributed to the market’s bullish tone. While risks remain, particularly around policy uncertainty and inflation persistence, the tone in equity markets has notably improved, with sentiment no longer dominated by geopolitical escalation or tariff fears. Figure 2: Development of the S&P 500 Since the Beginning of 2025 and Every Time the Index Reached a New All-Time High, Source: Investing, July 2025 Global hedge funds saw a remarkable surge in investor interest during the first half of 2025, drawing approximately $37.3 billion in fresh inflows, a level not seen since 2015. This boosted the total industry assets to a record $4.74 trillion by the end of June according to HFR. This capital surge was underpinned by robust strategy performance, with the average hedge fund up nearly 3.9% while major equity indices also posted gains. Of that inflow, roughly $30 billion went to larger managers overseeing over $5 billion in assets, reinforcing the dominance of mega-firms in the industry. Strategy-wise, equity hedge saw assets climb by about $90 billion to $1.4 trillion, while macro strategies posted mixed returns. Equity hedge funds gained nearly 5% with fixed income close behind at 4%. Funds of Hedge Funds reported positive results around 2.5%. Global Macro and Cryptocurrency hedge funds posted negative results with -5% and -11% for the first half of 2025. Figure 3 provides further details into the individual performance of selected hedge fund strategies. Overall, firms proved nimble in repositioning portfolios amid April's volatility spike and political-market shocks, helping to stabilize after early-year turbulence. The record AUM reflects renewed institutional confidence in hedge fund resilience through dislocations and uncertain macro regimes. Figure 3: YTD of Hedge Fund Strategies in 2025, Source: HFR, HFRX & HFRI, 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. 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