Market Update – May 2025

Summary

April was marked by significant volatility following the Trump administration’s April 2nd “Liberation Day” announcement, which introduced unprecedented tariffs on global trading partners. This move created uncertainty and caused sharp drops in the prices of oil, gas, coal, and copper. However, markets settled somewhat mid-month after the President suggested he was open to compromise and confirmed the U.S. central bank head would stay on – reassuring investors that no drastic policy shifts were likely.

Market Performance

• Australia: The Australian share market outperformed, with relatively low tariffs applied to our exports. Banks and tech companies performed strongly, especially the Commonwealth Bank.
• United States: American markets were volatile, falling at first, then bouncing back, especially in the tech sector, thanks to strong profits from Microsoft and Meta.
• China: Chinese markets were hit hardest due to steep tariffs from the U.S.
• Commodities: Prices of key goods like oil and metals fell as investors worried that global trade could slow down. Gold, often seen as a safe option in uncertain times, rose in value.

Economic Data

• United States: Jobs report (April) showed nonfarm payrolls increased by 177,000, slightly above expectations.
• Australia: Inflation was slightly higher than expected but is still heading in the right direction. This has increased the chances of the Reserve Bank cutting interest rates soon, which could ease pressure on borrowers.

Investment Outlook
There are signs that businesses around the world are becoming more cautious, holding back on spending and hiring due to uncertainty about trade. While this hasn’t yet shown up in official figures like job numbers or economic growth, things like shipping volumes are falling, which could be an early warning sign.
If the trade standoff between the U.S. and China continues, it could push both countries toward a recession. That said, financial markets are still expecting a deal to be made.

Multi-asset

The April 2nd “Liberation day” saw an unprecedented lift in tariffs on global trading partners by the Trump administration. The numbers were far above what the market expected, on friend and foe alike, and caused enormous volatility across the various asset classes. Commodities fell the hardest, as expectations of weaker global growth resulted in substantial falls across oil, gas, coal, copper and most metals, with the exception of gold, which outperformed.

Bonds, and bond proxies (REITs, property, infrastructure) all fared quite well, ranging from flat to slightly up depending on the market. Real assets are seen as fairly unrelated/unaffected by trade ructions, and lower yields bolstered the returns to fixed income (yields down = bonds up).

As a reminder of just how large tariffs are, as they stand, they are simply unprecedented in the modern era.

However the table above does mask a fair extraordinary bounce back, over April, after Donald Trump indicated he was open to doing deals, that the final numbers would be much lower, and that we wouldn’t attempt to remove Jerome Powell as the head of the Federal Reserve (the market worried that such interference would make the end of independence for America’s key institutions, which was something it didn’t like).

Global equities

The market hardest hit was China, where the tariffs are largest (at time of writing over 130% on Chinese goods imported into the US). US markets originally underperformed, but staged a stunning intra-month come back, to finish almost flat, and the tech heavy Nasdaq, originally deemed “at risk” given the amount of imported goods from China (across semiconductors, rare earths, engine parts, you name it, Google, Apple, Amazon, Facebook use it) finished slightly up, with strong earnings from Microsoft and Meta at the end of the month.

Australia fared surprisingly well, and was only slugged with relatively modest tariffs, in the order of 10%. Generally speaking, we did quite a bit of “dip buying” when assets sold off hard intra-month, and those trades will have worked out quite well, which is pleasing. We have since unwound most of those trades, taking profits.

Australia

The Australian outperformance stemmed largely from a rally in the Financials, led by CBA, which was deemed as “safe haven” of sorts for both local and global investors. IT stocks rallied alongside the recovery in the Nasdaq, and Consumer Discretionary stocks outperformed on the expectation of lower rates, benefiting the consumer, and their wallets. Resource stocks fared poorly, with the OPEC decision to increase oil supply in the midst of a plausible hit to future demand resulting in tremendous weakness across both the commodity and the commodity producers.

The top performing names appear as a mixed bag, but uranium stocks like BOE and PDN rallied, as did the aforementioned financials, tech and consumer names.

The underperformers for the month featured the oil and gas names, WOR (a construction/engineering firm heavily exposed to hydrocarbons) alongside WDS, STO, KAR and BPT. Other names included those hit or at risk from interrupted trade, like ANN or (not shown) AMC (Amcor).

We own quite a few of those energy names (Woodside, Santos, and (not shown) Whitehaven coal and Ampol) which will make for a difficult month in the portfolios that hold them.

Outlook

Whilst the trade war drags on, with (as yet) no major deals announced, unsurprisingly firms are pulling back on capex and new hiring intentions. None of that will show up yet in the “hard data” like output, inflation or unemployment for some time (after all, this only kicked off from April 2nd). However some higher frequency data like global freight shows a very material decline, which will absolutely have material negative spillovers to the economy.

There’s no doubt that as it stands, the US, and likely China, will have a recession if a trade embargo between the two exists. It’s just too large, too big and impact to suddenly absorb. Current market pricing believes a deal will happen, and thus isn’t priced for it to drag on for months. The S&P500 trades at 20x forward earnings, on an expected earnings of ~280, leaving the market valued at ~5600. If there’s no deal, the earnings will be lower, as will the market multiple.

Important information

Past performance is not a reliable indicator of future performance.

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