Global financial markets have been turned upside down so far this year with uncertainty running high due to US President Donald Trump’s trade tariff announcements.
Tariffs are one of the major geopolitical risks, listed in the IMF’s latest Global Financial Stability Report, including wars, sanctions and diplomatic stand-offs that are directly affecting the financial markets.
The report warns that the impact of geopolitical risk events can spill over to sovereigns and firms in other countries through trade and financial linkages, increasing the risk of financial contagion, and resulting in volatility on the markets.
For the first few months of this year, markets do not appear to be in full panic, but the double-digit declines in major US stock indexes are testing nerves.
US markets had been on a two-year tear coming into 2025, though many believed that stock prices had become overinflated. Trump’s trade war pushed that sentiment into hyperdrive. The S&P 500 has tumbled more than 12%, and US markets are being outpaced in Europe, Asia, and just about everywhere else.
Trading in traditional “safe havens” like US Treasuries and the dollar has become erratic and unpredictable. At the beginning of the week, the dollar struck a three-year low and US Treasury yields have been soaring. Typically, yields would fall as investors seek a safe place to park their money. US Treasuries no longer appear to provide the shelter they once did.
Only gold, a commodity traded internationally, has maintained its reputation as a safe zone. The price of gold is hitting one record high after another.
Here’s a round-up of what is happening in various segments of the financial market:
Has the US stock market lost its edge?
US stocks have been losing ground in a sharp reversal after two years of stellar gains.
The S&P 500 index, which is considered a benchmark for the broader market’s health, is down 12.3% in 2025. It gained more than 20% in both 2023 and 2024.
The benchmark index is already in “correction,” having fallen more than 10% from the record it set in February. There have been only five weeks in which it’s ended in positive territory this year and with Monday’s decline, it’s moving closer to bear market territory, or a 20% drop from recent highs.
It’s worse on the growth-focused Nasdaq composite, which has plunged nearly 18%.
At the end of trade on Monday, all the three major US indexes were down by more than 2.3%.
Overseas markets have largely performed much better than their US counterparts.
How rising anxiety is hitting US Treasuries
Treasuries, typically considered a less risky area of the market, have been volatile throughout the year.
The 10-year Treasury, which influences mortgage rates and other loans, was as high as 4.80% in January but then fell until Trump announced the broad details of his tariff policy in early April. Yields then began to spike this month. The recent jump in bond yields, which happens when bond prices fall, reflects rising anxiety about inflation and a potential recession.
Treasury bonds are essentially debt that the US government takes from the market, and they’re how Washington pays its bills. Bond prices typically move in the opposite direction of stock prices, but prices for both have fallen in tandem. That raises more significant concerns, namely a loss of faith in the US as a safe place to invest.
Is gold the last safe-haven asset?
While traditional ‘safe haven’ assets such as the US dollar and US Treasuries are losing their status as safe investments amidst the current uncertainty, gold is soaring — setting record after record in 2025.
Gold futures rose to more than $3,500 on Tuesday, before they declined a bit. The price is up nearly 27% this year.
Interest in gold spikes in times of uncertainty as investors seek a safe place for their money, although there can still be some volatility. The price of spot gold fell for three straight trading days following Trump’s sweeping “Liberation Day” announcement on 2 April, for example, but soon rebounded overall.
US dollar battles tariff uncertainty
The US dollar, the world’s reserve currency, is falling under the weight of uncertainty over tariffs, inflation and the direction of the US economy.
The US dollar is down a steep 9% for the year when measured against a basket of other currencies, including the euro, Japanese yen, Canadian Dollar and Swiss franc.
The dollar began to erode almost immediately in 2025, but those losses have accelerated over the past two months. A weakened dollar means it is more difficult for the US government, businesses and consumers to borrow money at lower rates. It also means less purchasing power for US consumers and the potential for stunted economic growth.
Oil prices reflect changing geopolitics
There is good news and bad news about energy prices. The average price for a gallon of gasoline in the US on Monday was $3.15, down sharply from $3.67 at this time last year. That’s the good news.
The bad news is that energy prices fall when people start anticipating an economic slowdown. Factories produce less, families call off vacations and businesses cut travel expenses.
Oil prices hit a four-year low this month, with anxiety over the impact of tariffs on global economic growth sinking in.
West Texas Intermediate crude, the US benchmark, stood at around $64.10 per barrel on Tuesday at midday in Europe. That’s down nearly 14% year to date. And Brent crude, the European standard, was just above $67 — down nearly 13% since the start of 2025.
Economists are warning that the steep tariffs Trump is pursuing could cause a recession, which could carry significant implications for the supply chain and jobs in the energy sector.
Bitcoin on a rollercoaster
Bitcoin has continued to undulate.
The world’s largest cryptocurrency has been on a rollercoaster since the start of the year — with the volatile asset climbing to more than $109,000 ahead of Trump’s inauguration in January, only to dip under $75,000 amid wider market sell-offs this month. As of midday Tuesday, bitcoin’s going price was above $88,000, per CoinMarketCap.
That’s more than $6,000 lower than what bitcoin was trading at the start of 2025 — but still significantly higher than in recent years. At this time last year, bitcoin traded around $65,000. And in April 2023, months after the November 2022 collapse of FTX crushed crypto, the digital asset went for under $30,000.
Trump, once a crypto sceptic, became a major promoter of the industry throughout his campaign — and last month, he signed an executive order establishing a government reserve of bitcoin.
IMF: How hard geopolitical risks could hit the market
According to the latest Financial Stability Report, major geopolitical risks, which are likely to affect international relations or economies at a wider scale, tend to hit the stock market the hardest. The impact on aggregate stock prices could reach about 1%, and it is projected to last for a quarter.
Military conflicts have the most devastating effect on firms’ stock returns via trade linkages. For example, the involvement of a country’s main trading partner in a military conflict reduces stock returns for the country’s firms by about 2.5%.
In the most severe cases, in emerging markets, being involved in military conflicts could reduce firms’ stock returns by about 5%.
Geopolitical risks include trade tensions, too. According to the IMF, directly involved Chinese firms’ stock prices declined by almost 8% on 6 May 2019, when the US announced tariff increases on Chinese products amounting to $200bn (€174bn).
In 2019, the retaliatory tariff announcement by China also had a significant impact on both Chinese and US firms’ stock prices. Stock prices of US firms fell by 1.6–1.8%, on average, according to the report.
How the bond markets react to geopolitical risks
The bond markets also react to geopolitical risks, meaning that governments need to pay more when borrowing from the market. Credit default swap (CDS) spreads, the premium against a country defaulting, tend to increase in advanced economies by about 30 basis points if there is an international military conflict affecting their markets.
Emerging markets are facing a larger impact as they tend to have higher levels of public debt and lower ratios of international reserves to GDP; their CDS could increase by more than 150 basis points.
Meanwhile, long-term sovereign yields in countries traditionally considered safe havens, like Japan or Switzerland, tend to decline following geopolitical risk events.
According to another report by investment research company BCA, amid current volatile movements on the stock markets, the German Bunds appear to be one of the safest choices.
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