International Market Turbulence in 2025 – How Will Investors Cope?

Stock market volatility is nothing new, but 2025 is shaping up to be the year investors need to rethink their strategy. The old approach of investing in tech giants is giving way to a more balanced approach that focuses on diversification, quality, and thoughtful capital preservation.

Rather than focusing risk on a few overvalued companies, investors may want to consider spreading their investments. Diversified ETFs are gaining popularity as a way to hedge against single-stock risk as global markets, particularly Europe, Asia and Japan, attract new capital. Corporate reforms in Japan and undervalued opportunities on European stock markets are bringing international investment strategies back into play, helping to diversify the risk of U.S. concentration.

The basis of investing is becoming a return to basics. Investors who have suffered losses due to speculative madness, as in the case of the so-called Magnificent 7, may consider shifting their investments toward high-quality companies with solid balance sheets, strong cash flows and resilient earnings – betting on a stable base rather than a passing fad.

Sectoral shifts are also underway in the market. Defense, healthcare, utilities and consumer discretionary are seeing increasing interest as investors seek to protect their capital from sudden volatility. Financials, long dominated by uncertainty, are showing signs of recovery, supported by rising interest margins and an improving credit environment. Defense stocks, meanwhile, are benefiting from rising military spending around the world, while green energy continues to attract capital, supported by government incentives and long-term policy support.

Hedging risk is another important piece of the puzzle. With inflation concerns lingering and expectations of interest rate cuts changing, investors are turning to gold and commodities as a form of protection. Bond ETFs are also enjoying a renaissance, offering stable income and portfolio stability in the face of uncertainty.

Even cryptocurrencies that were previously ignored as risk assets are now gaining attention. In times of volatility, it is worth betting on cryptocurrency “blue-chip.” Bitcoin i Ethereum remain staple assets for many investors. This is because they have the largest networks, the widest adoption, and serious institutional support.

In short, the days of technology driving the market alone are likely behind us. 2025 promises to be a year of greater diversity in investment portfolios. Quality, resilience, and strategic diversification will continue to be key priorities in selecting companies. Investors who adapt to this new reality by playing both defensively and offensively will have the best chance of long-term success.

After the publication of the report on job offers and employee turnover

The S&P 500 is approaching a 10% correction, and investors are struggling to find positive news. JOLTs Report did not surprise positively, but the published results are still better than expected. This gives investors some hope, especially in the face of worrying signals from Wall Street.

The jobs report released did little to calm public concerns. The increase in jobless claims did little to dispel those concerns, nor did the ongoing reorganization of the federal workforce. Stability in the JOLTs and employment reports would give investors confidence that the labor market has the strength to weather the rise in economic uncertainty. In the current environment, the market may need at least a few better jobs readings to bring back more confidence among investors. 

Consumer spending is the lifeblood of the U.S. economy, accounting for about two-thirds of GDP. While GDP forecasts have been clouded by import and export data, consumer conditions appear stable for now. However, if the labor market begins to deteriorate significantly, that would certainly affect consumer spending and, in turn, corporate profits in those sectors. 

While Federal Reserve Chairman Jerome Powell's recent comments on the U.S. economy have been reassuring, the Fed's upcoming press conference and quarterly economic report are likely to be the main pieces of information investors are looking forward to in this time of chaos.

Investment landscape in Poland

Since the beginning of the year, the Polish stock exchange has done much better than Wall Street. WIG has risen by 16,7 percent since the beginning of the year. WIG20 has risen by 17,5 percent. At the same time, the S&P500 fell by 5 percent, and the Nasdaq by 9,7 percent. It is clear that sentiment in Warsaw is much better, as is the case in the whole of Europe. For comparison, German DAX has increased by almost 14 percent since the beginning of the year. The driving force behind growth in Europe are companies from the arms industry, whose shares are becoming more expensive as a result of announcements of a significant increase in arms spending in Europe, and especially in Germany.

The US markets are losing ground due to the high uncertainty on the local market. A mix of chaos in the introduction of tariffs, implemented and announced spending cuts and layoffs of federal employees are all elements that are affecting the deterioration of investor sentiment. Not long ago, these same issues, as Donald Trump's announcements - related to spending cuts and deregulation - gave strength to the markets, but the manner and abruptness of the changes are causing uncertainty, which is a serious problem for investors. Uncertainty translates into increased market volatility - the VIX index, known as the fear index, has increased by almost 20% over the past week, and yesterday its value briefly exceeded 29 points. Markets are worried that the current decisions could trigger a short-term recession in the US.

Despite the weaker performance of technology companies, Polish investors seem to be big fans of technology. As the “Puls Inwestora Indywidualnego” study published by eToro shows, in recent months investors from all over the world have clearly focused on diversifying their portfolios, while Poles remain loyal to the technology industry. This has not been changed by the growing risk of a correction, which is now partially materializing. Polish investors were also not bothered by the high valuations of the most important American technology companies. It turns out that many Polish investors believe more in the long-term prospects of the US stock exchange, because our stock exchange has had difficulty maintaining growth for a longer period of time in the past. There is no doubt, however, that we are in a period of increased uncertainty and volatility, of which Polish investors are well aware.

Cash is definitely not an alternative for Polish investors, which is also shown by the study, because even the best one-year bank deposits have been generating real losses since the autumn of last year – and this will probably continue throughout 2025.

Authors:
Lale Akoner, Chief Market Analyst at eToro,
Bret Kenwell, American eToro investment analyst
Paweł Majtkowski, Polish eToro analyst