April 2025 – Markets Review – Gold Outperformance & Recovery in Global Equities

April 2025 Capital Markets Performance Review

April was a volatile and revealing month for global capital markets, with currency fluctuations, sector rotation, and policy uncertainty shaping returns across equities, commodities, and FX.

1. Currency-Driven Equity Gains

• April’s global equity performance in USD terms was heavily influenced by currency strength rather than underlying equity market moves.
   
• MSCI Europe rose +4.0% in dollar terms, with euro/pound appreciation contributing +4.4%, implying negative local equity returns.
   
• Similarly, MSCI Japan’s +4.2% USD return was entirely attributable to yen strength (+4.8%).
   
• Emerging market currencies underperformed their developed peers in April (+1.9% vs. +4.4%), a key factor in EM equities’ continued lag in 2025.

Strategic Implication: The weaker USD is lifting non-US equities for dollar-based investors. We maintain our recommendation for a 30% allocation to non-US stocks within a global portfolio, supported by both currency tailwinds and historical US equity overweights.

2. Mean Reversion Dominates

April saw a sharp reversal of Q1 performance trends:

• US Big Tech and large-cap Growth underperformed.
   
• Defensive strategies like Minimum Volatility and dividend-focused ETFs also lagged.
   
• Several EM markets that outperformed in Q1 retraced in April.

The CBOE VIX spiked to 52 on April 8th amid a brief 11.2% S&P 500 drawdown, although the index ended the month down just -0.8%.

Market Context: April was less about trend and more about rebalancing. The sharp mean reversion, combined with volatility spikes, reflects investor uncertainty and shifting sentiment rather than a clear macro signal.

3. Fear vs. Hope Heading into Late Q2

• US economic indicators weakened even before April’s volatility.
   
• Trade policy uncertainty continues to weigh on sentiment, with no near-term resolution in sight.
   
• Despite this, the S&P 500 still trades at 20.9x 2025 earnings, showing persistent investor optimism.

Outlook: The remainder of Q2 will be a psychological tug of war. For now, fear has the upper hand, but any clarity on trade policy could provide a much-needed pivot point.

1: Major global/US stock indices: 

1. Non-US Gains = FX Effect
 MSCI Europe (+4.0%) and Japan (+4.2%) gains were entirely currency-driven. Euro, yen, and pound strength (+4.7% to +4.8%) masked negative local returns (Europe -0.4%, Japan -0.6%), aligning with the S&P 500’s -0.8%.

2. US Mean Reversion Play

Nasdaq rebounded (+0.9%) after Q1’s -10.4% loss. Equal-weight S&P 500 underperformed in April (-2.4%) after Q1 resilience. Small caps remained weak—no mean reversion seen (IJR -4.2%, R2K -2.4%).

3. Volatility Dominated

The S&P 500 plunged 11.2% intramonth (Apr 8), VIX spiked to 52. Recovery to -0.8% came only after a major U.S. trade policy shift. Q2 outlook hinges on fallout from April’s turmoil and clarity on trade deals.

2: Major developed and emerging economy single-country equity returns versus the S&P 500:

1. Currency Gains Drive Developed Market Outperformance

MSCI Germany led April with a +6.5% USD return, but local equity gains were modest (+1.8%)—the rest came from euro strength. Switzerland’s +4.0% return was entirely FX-driven, as the franc surged +6.9% on safe haven demand.

2. Emerging Markets: Mean Reversion in Play

April saw reversals from Q1 and 2024 trends:

• China fell -5.0% after Q1’s +16.1%.
• India rose +4.1% (Q1: -2.2%).
• Taiwan was flat in April but fell -8.3% in Q1.
• Brazil & South Korea rebounded in both April and Q1 after steep 2024 losses.

Conclusion: FX effects remain critical in interpreting performance, while EM equity trends reflect sharp mean reversion rather than sustained momentum.

3: Major commodities:

April saw broad declines across cyclical commodities—crude oil, natural gas, silver, and copper all posted losses, reflecting a sharp shift in risk sentiment. Only gold and the leading cryptocurrency advanced, underscoring a flight to safety.

Interpretation: While falling commodity prices may reflect economic uncertainty, they aren’t yet conclusive signals of a recession. In fact, rapidly declining oil prices can act as a disinflationary tailwind, making an imminent contraction less likely for now.

4: Major developed and emerging economy currencies versus the dollar:

Non-U.S. currencies—especially from developed markets—extended their rebound in April, driven by mean reversion after sharp Q4 2024 losses.

• Developed currencies, down ~7% in 2024, have recouped most of their losses YTD.
   
• EM currencies, which fell ~12% last year, are recovering more gradually.

Conclusion: The currency rebound is less about fundamental strength and more a retracement of late-2024 overshoots, reinforcing the FX-driven nature of April’s global asset returns