The 2025 market wobble explained – and funds to consider

The prospect of a spiralling trade war and rising geopolitical tensions has sparked bouts of selling in stock markets in the past week.  

The US has been at the eye of the storm after President Donald Trump stepped up rhetoric around trade tariffs, which will increase costs on consumers and businesses in America and elsewhere.  

The S&P 500, the index of America’s biggest companies, has fallen by 8.6% from a peak in mid-February (to the close on Tuesday) and it has fallen a total of 5.5% in 2025. The Nasdaq index of technology stocks is down 9.7% this year. 

The US market is now lower than where it sat before the ‘Trump bump’ in November, when President Trump’s election victory propelled markets forward.

• Read: How I've coped with 40 years of market setbacks

Why the falls? The fear is that by imposing additional costs on world trade, economic growth will be undermined while also stoking inflation. Fidelity’s economists now estimate a 50% chance of the US seeing the painful scenario of ‘stagflation’, when economic growth stagnates but inflation remains high. 

It’s worth noting, however, that major stock markets remain substantially higher than a year ago, as shown in the table below. 

Changes in European and US markets 

Past performance is not a reliable indicator of future returns

Source: LSEG Datastream, 11.3.25, European index is Stoxx Europe 600 

What about European markets? 

With the growing trade spat between Canada and US drawing most attention, European markets have been less affected. Europe has also been lifted by the prospect of increased defence spending.  

The German stock market has risen 16% so far in 2025, followed by 11% for Spain and 10% for Italy.  

It is also worth noting that the US market has been on a high valuation for several years with technology stocks – led by the ‘Magnificent 7’ – leading a powerful rally.  

The US market trades on a price-to-earnings ratio, a measure of value, of 24.9 compared to cheaper markets in the UK, on 16.2, and Europe, on 16.9. This high valuation left the US more vulnerable to falls, or weaker rises.  

What about bond markets? 

Bonds, which are effectively IOUs from companies and governments that pay investors fixed income payments, can provide diversification from stock markets.  

US bond prices have been rising this year. This is because bond yields have been falling. The driver is a growing fear of economic slowdown – the economy will need lower interest rates to support growth. Markets are now pricing in two rate cuts in the US this year with a high chance of a third cut.  

What about currency markets? 

Currencies are a proxy for economic strength. As fears have grown for the US economy, the dollar has sunk.  

The pound has strengthened from a low of $1.22 in January to $1.29. The euro’s rise has been even sharper, up from €1.03 to €1.09.  

How to best use a market wobble 

The best place to start is to look over our investment principles, which can help you tune out of short-term noise and stay focused on long-term goals. 

But market falls do provide a chance to think about whether your portfolio is performing as it should. Remind yourself of the purpose of your portfolio and your own comfort level with risk:  

• What are your time horizons? The stock market has tended to achieve better returns than bonds and risk-free cash over long timeframes (10 years-plus), although there is no guarantee of a repeat. And remember that losses are only realised when you sell. 
• How do you feel when markets fall? This can change over time so use market wobbles to examine how well you cope with them. Even if you have long savings time horizons, you need to be able to sleep at night. Make sure you hold investments that match your risk appetite. 
• Is this a buying opportunity? Seasoned investors often see market falls as a reason to invest more, not less, and may even decide now is the time to put any cash they have on the sidelines to use while markets levels are suppressed. It is worth considering the valuation of markets, as per the table above. Our Select 50 offers some favoured funds. Use the ‘Investment Association Sectors’ dropdown to narrow the geographies. Search the Select 50 here.  
• Will you miss a tax-efficient opportunity? The allowance we get to invest tax-free inside an ISA is limited – you use it or lose it each year. Even if you are put off investing money into the stock market right now, be sure to make the maximum use of your £20,000 ISA allowance for 2024/25 before the window closes on 5 April. You can contribute to your Stocks & Shares ISA without committing to investing the money right away. Money not invested is held in Fidelity’s Cash Management Account where interest is currently paid at 2.99% (AER) a year.  

Three Select 50 funds to consider 

The Pyrford Global Total Return Fund is designed to minimise the impact of rocky markets. It aims for low volatility and to try to minimise falls. Unlike most of the funds on our list, it invests in a range of asset types, combining investments in shares, bonds and cash. The allocation to stock markets is usually below 50% and is currently just 30%. Most of the money is in bonds. It has very low exposure to the US – less than 4%. 

• More on Pyrford Global Total Return Fund 

The Dodge & Cox Worldwide Global Stock Fund is well diversified across world stock markets. A little over 50% of the fund is invested in the US when most global index tracking funds would allocate nearly 70%. It also invests in Europe, the UK, Japan and Australasia, but will allocate smaller amounts to emerging markets, like parts of Asia, Latin America and Africa. The managers are ‘value’ investors, quite contrarian and often buying companies with depressed share prices. 

• More on Dodge & Cox Worldwide Global Stock Fund

Fidelity Global Dividend Fund is run by Dan Roberts, a meticulous investor with long stock market investing experience. He has an extensive pool of company researchers who can help guide his investments. His focus can, therefore, be on selecting the best ideas that the analysts provide. The fund is regarded as one of the riskier allocations within a diversified portfolio. It has relatively low US exposure, at 27%. Nearly 50% is invested in Europe and 17% is in the UK.

• More on Fidelity Global Dividend Fund 

Past performance is not a reliable indicator of future returns 

Source: Refinitiv, total returns from 28.2.20 to 28.2.25. Excludes initial charge. 

Important information - The value of investments and the income from them can go down as well as up so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Eligibility to invest in an ISA and tax treatment depends on personal circumstances and all tax rules may change in the future. The three funds mentioned invest in overseas markets so the value of investments could be affected by changes in currency exchange rates. The Dodge & Cox Worldwide Global Stock Fund invests in emerging markets which can be more volatile than other more developed markets. The Dodge & Cox Worldwide Global Stock Fund and Fidelity Global Dividend Fund use financial derivative instruments for investment purposes, which may expose the funds to a higher degree of risk and can cause investments to experience larger than average price fluctuations. The Fidelity Global Dividend Fund invests in a relatively small number of companies so may carry more risk than funds that are more diversified. Dodge & Cox Worldwide Global Stock Fund, has or is likely to have, high volatility owing to its portfolio composition or the portfolio management techniques. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. The Key Investor Information Document (KIID) / Key Information Document (KID) is available in English and can be obtained from our website at www.fidelity.co.uk. Please note that Tom’s picks and Select 50 are not a personal recommendation for you. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.