Market Outlook

Market update

The inflation outlook has been a key debate for markets and policymakers. However, the focus has shifted as inflation globally has continued to fall, and many central banks have switched their concentration to supporting growth and labour markets. Seven of the G10 central banks have now cut interest rates, including the European Central Bank, Switzerland, Canada, New Zealand and the United States - where the US Federal Reserve cut by 0.5% in September and by a further 0.25% at the beginning of November. 

In Australia, we are at a different phase of the cycle, and inflation is still too high and economic growth weak. The Reserve Bank of Australia (RBA) met at the beginning of November and left rates on hold at 4.35%. This was widely expected, although in its statement the RBA said that while inflation has “fallen substantially” from its peak in 2022, underlying inflation “remains too high”. 

Many investors interpreted this statement as dovish, which gave rise to the hope that Governor Bullock may not in fact raise rates and could even cut rates sooner than expected.  All will depend on how the data plays out in coming months.

In economics, doves are those who are less worried about inflation and prioritise economic growth and reducing unemployment and support lower interest rates to achieve this. Hawks are more focused on controlling inflation, even if this means lower economic growth. They support higher interest rates to keep inflation down and prices under control. Neither theory is guaranteed to produce the desired results, and one of the jobs of central banks is to balance both views to make the right decisions for the economy. 

On a positive note, there is hope that economic growth may improve when tax cuts and income growth flow through to households, allowing them to spend more. 

What does it mean for performance?

Lower interest rates can be positive for investment markets, and Australian and international share markets rose over the September quarter, and the year. This meant investment options with higher allocations to growth assets, like shares, did well. 

Bond yields (the interest rate on Government bonds) were lower, which meant bond prices were higher, and returns were positive for the quarter and the year. 

Our flagship accumulation option, Future Saver High Growth, which is the default MySuper option for our younger members and where most of our members are invested, performed strongly for the year to 30 September 2024. 

In retirement, members in our most popular pension option, Retirement Income Conservative Balanced, also had a solid year. This option has a more conservative mix of growth and defensive assets which our retired members’ favour.

Investment Performance to 31 September 2024

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Source: SuperRatingsPension Fund Crediting Rate Survey. September 2024. Past performance is not a reliable indicator of future returns. 
** Retirement Income Conservative Balanced option is Aware Super’s default pension option, and where most of our retired members are invested.

*Source: SuperRatings Pension Fund Crediting Rate Survey. September 2024. SRP25 Conservative Balanced (41-59) Index. Past performance is not a reliable indicator of future returns.  

Scroll table horizontally on mobile

Source: SuperRatings Fund Crediting Rate Survey. September 2024. Past performance is not a reliable indicator of future returns. 
* High Growth is our default MySuper option for younger members, and where most of our members are invested.

*Source: SuperRatings Fund Crediting Rate Survey. September 2024. SR50 Growth (77-90) Index. Aware Super Future Saver High Growth ranked 8th over 5 & 10 years. Past performance is not a reliable indicator of future returns.

Market outlook

It’s been a positive start to the 2025 financial year, but global tensions remain high, particularly in the Middle East, and depending on what happens, this could cause volatility in markets. 

The US election has dominated headlines over the past months. Despite the widespread belief that the election would be closely fought, Donald Trump scored a decisive victory, winning not only the Presidency, but also the popular vote, the Senate and the House of Representatives. This puts him in a very strong position to pursue his policy agenda. 

The initial reaction of financial markets has been largely positive. The US share market rose strongly, although bond yields (the interest rate on Government bonds) also rose, because markets expect Trump’s policies to lead to higher inflation and higher government borrowing. When yields rise, the price of bonds fall, resulting in lower returns, and that what we’ve seen.  

It’s a case of wait and see what the data reveals and how the RBA responds. As always, it’s impossible to predict with accuracy or consistency how markets are likely to react to different pieces of news.

At Aware Super, we keep a close eye on the factors which are likely to affect markets in the short-term, and consider how they might influence our outlook, and our returns going forward. However, we believe that the best response is to continue to focus on our long-term strategy and actively managing our diversified portfolio of quality assets to help deliver returns over the long term.