Uneasy Calm?

Is the uneasy calm in markets the calm before another storm, or simply exhaustion after five months of relentless volatility and a shifting geo-economic landscape?

In the absence of a crystal ball, examining past market regimes by analysing risk factors and sector dynamics provides a valuable tool for navigating uncertainty. History doesn’t repeat, but patterns often emerge that help us anticipate how current macro conditions might interact with political developments.

Macroscope, our proprietary macro regime model, sees today’s market environment as caught between fragility and tentative stabilisation. It shows strong similarities to late 2010 and mid-2020, periods defined by uncertainty and fragile recoveries from major crises. October 2012 also stands out as a comparable period, when central bank interventions underpinned cautious optimism, stabilised bond yields, and supported risk assets amid geopolitical tensions.

While markets have rebounded from April’s meltdown after the initial easing in trade tensions, investors remain cautious over the US’s growing deficit, policy uncertainty and dimming economic outlook. The world’s largest economy shrank an annualised 0.2% in the first quarter, a second estimate showed last week. That prompted bets on faster monetary policy easing despite inflation staying stubbornly above the Federal Reserve’s 2% target.

Even though the macro similarities remain effectively unchanged from just before Liberation Day on 2 April, Macroscope’s positioning, which reflects shifts in market dynamics and investor sentiment, has moved to favour stocks with higher sensitivity to market movements (higher beta), reflecting a renewed appetite for risk. This marks a sharp pivot from its more defensive stance in April. Among style factors, Growth has overtaken Value as the model’s preferred tilt, signalling a more optimistic view of market dynamics. Quality stocks, however, continue to feature prominently, aligning with the model’s cautious yet opportunistic outlook.

Figure 1. Market shift to more risk

Source: Man Numeric, MSCI Barra as at 28 May.

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In terms of sectors, cyclical industries like internet software and biotech have rebounded, buoyed by tentative confidence in stabilising markets. However, trade-sensitive sectors such as semiconductors remain under pressure, reflecting ongoing caution around global trade dynamics.

Figure 2.Rebound in cyclical industries

Source: Man Numeric, MSCI Barra as at 28 May 2025.

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Deal or No Deal?

Mergers and acquisitions (M&A) were supposed to be back in full force this year. After two quiet years, a business-friendly Republican administration and easing regulatory hurdles had many expecting a US dealmaking frenzy. But as we approach the halfway point, activity has yet to take off. In fact, US M&A volumes in Q1 2025 were down 33% compared to the same period last year, with just US$111 billion in announced deals.

Not surprising, the key reason for companies holding off on deals is the current macroeconomic uncertainty and volatility. That said, many of the conditions necessary to jumpstart M&A activity (appetite, cash and pent-up demand) remain in place. This is a short preview of our comprehensive M&A in 2025: Deal or No Deal? paper that outlines the key opportunities we see once volatility subsides and confidence returns.

Macroeconomic fog and volatility

Corporate and private equity (PE) buyers are ready to spend. There’s plenty of cash sitting on the sidelines, but macroeconomic unpredictability is keeping the brakes on. It’s not about needing a booming economy – dealmakers can work with lower growth or even some tariffs – but they need stability. Without that, boards are reluctant to make big commitments.

The good news? The regulatory picture is improving. After years of tough antitrust policies under former US President Joe Biden, the Trump administration has ushered in a more accommodating approach. For instance, Capital One’s US$35.3 billion acquisition of Discover Financial Services – with its overlaps in subprime credit cards – likely wouldn’t have passed under Biden. While not every deal will sail through (HPE’s attempted Juniper merger was blocked for being anti-competitive), there’s a clear step-change in the speed and likelihood of approvals.

Private markets: The battle to finance larger deals

Private markets tell a slightly different story. Without the distraction of shareholder price movements, private deals are often easier to negotiate. Recent mega-deals like Alphabet’s US$32 billion acquisition of Wiz and Worldpay’s US$24 billion purchase of a Global Payments unit highlight this trend.

Private credit funds are also giving large borrowers more financing options. The rise of private loans for upper middle-market transactions (companies with earnings before interest, taxes, depreciation, and amortization or EBITDA of US$100m+) has created a new dynamic. While smaller companies remain as reliant as ever on private markets, larger firms now have the flexibility to choose between public syndicated loans and private credit.

The result? Pricing and terms in private credit have become more competitive, creating fertile ground for private M&A.

Sector snapshots: where’s the action?

Certain sectors are especially ripe for deals:

• Healthcare: Cash-rich pharma companies like Pfizer, flush from COVID vaccine revenues, are eager to deploy capital. While Biden-era politics limited large-scale consolidation, Trump’s administration is more likely to greenlight healthcare services and big pharma acquisitions
• Technology: Growth remains the primary driver here. While Big Tech (e.g., Alphabet, Amazon) may face regulatory hurdles, there’s plenty of appetite among smaller tech giants. IBM’s recent acquisition of Hashicorp shows how even large tech firms can use M&A to reignite growth
• Europe and Japan: Beyond the US, a push for regulatory shifts in Europe and corporate reforms in Japan are creating opportunities. Europe’s banks are pursuing consolidation to create “pan-European champions,” while Japan’s shareholder-friendly changes have attracted private equity interest in sectors like manufacturing and services

Opportunities in risk

One unexpected bright spot is the rise of hostile or unsolicited deals. These can be risky for investors, with no guarantees of closure and the possibility of counterbids, but they often create attractive merger arbitrage opportunities. Wider spreads and higher risks have been particularly enticing in the leveraged buyout (LBO) space.

Parting thoughts

The pieces for a resurgence in M&A are in place: less restrictive regulation, record levels of PE capital, and sector-specific opportunities. But the key to unlocking this potential is macroeconomic stability. For now, companies are waiting for the dust to settle.

All data sourced from Bloomberg unless otherwise stated.

With contributions from Valerie Xiang, Portfolio Manager at Man Numeric, Putri Pascualy, Senior Managing Director at Man Varagon, Nick Wilcox, Managing Director, Discretionary Equities, Michael Zhu, Portfolio Manager at Man Group, Sriram Reddy, Head of Client Portfolio Management, Discretionary at Man Group and John Lidington, Senior Client Portfolio Manager, Man Numeric.

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