Investment Market Update
June 2025 | 3min read
Key takeaways
- Results for the 2025 financial year were strong in our flagship options despite periods of volatility– evidence of the strength of our future-focused diversified portfolio positioned for the long term.
- For the first half of the financial year to December 2024 markets performed well, due in large part to the strength the US economy and US share markets.
- Post the election of President Trump in November, uncertainty about the US policy agenda, and in particular tariffs, resulted in periods of volatility.
- Markets fell sharply in April after Liberation Day tariff announcements, but have since recovered most of their losses as trade tensions have de-escalated.
- Looking forward, we expect further periods of volatility in markets given challenges in the current economic and geopolitical backdrop.
- Our investment team constantly monitors changes in economic cycles, market trends and geopolitics and are experienced at investing in all market conditions. We remain focused on long-term dynamics expected to drive investment returns for our members.
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The 2025 financial year in review
The 2025 financial year started strongly as US economic outperformance saw US share markets hit record highs. Corporate earnings were strong, and investors responded enthusiastically to advances in AI.
Adding to the positive backdrop for markets, the US central bank, the US Federal Reserve, cut official interest rates three times between September and December 2024 as it became increasingly confident that inflation was coming down and moving towards target.
On the other hand, even as the US share markets continued to rise, there was increasing concern that the rise was not evidence of the strength of a broad range of US companies but rather increasingly ‘narrow’ – being driven by a small number of very large tech companies – the Magnificent 7 - as they came to be known. These are Apple, Microsoft, Alphabet, Amazon, Nvidia and Meta, which due to their size and performance were increasingly important in determining overall market returns for the year.
Concern about the dominance of the Magnificent 7 was again highlighted in January, when markets were unsettled by the emergence of Deepseek, a Chinese AI technology with the potential to disrupt the dominant position of the established tech leaders.
Taking a step back to a broader perspective however, it has been the US political landscape, and the election of US President Donald Trump which has most impacted global economies and market performance since November last year.
Initially, markets reacted positively to President Trump’s election, in the expectation that he would follow through on his promises of tax cuts and deregulation.
As we moved into March and April 2025 however, his trade agenda took centre stage – in particular the prospect of much higher tariffs. Tariffs generally have an upward effect on prices and a negative effect on economic growth, so the fear of wide-ranging tariffs unsettled markets, as investors tried to understand what the effect on global growth and inflation might be.
President Trump initially focused on Canada, Mexico and Europe but on so-called “Liberation Day” he announced far-reaching tariffs on numerous additional countries, including Australia. Although investors knew they were coming, the tariffs announced were much higher and broader than expected, and this caused global share markets to fall sharply – by nearly 20% in April.
The economic shock from the tariffs – as well as the retaliatory measures they provoked from other countries – cast a shadow on the outlook for global growth and inflation. However, since April there has been a de-escalation in trade tensions as countries continue to negotiate trade deals with the US and share markets have recovered most of their earlier losses.
Having said that, the tariffs imposed by President Trump are part of a wider range of economic themes which have been growing in significance and impacting markets since the pandemic. These include rising populism, deglobalisation, uncertainty in fiscal policy (government spending and taxation), as well as a rise in geopolitical tensions.
In Australia, economic growth has been disappointing, and the Australian dollar was among the weakest of the G10 currencies last year. On the other hand, inflation has been lower, and the labour market has remained resilient. It is widely expected that the Reserve Bank will continue cutting interest rates as we move through the calendar year as inflation returns to target.
Our outlook
Looking forward, we expect that the macro themes we mentioned –increasing populism, deglobalisation, uncertainty in fiscal policy and rising geopolitical tensions, will continue to impact and shape market dynamics.
Tariffs and oil prices will likely have the greatest near-term impact, given their effect on inflation and if tariffs result in a decline in global trade, it will negatively impact the outlook for global growth.
Having said that, the expression that “markets climb a wall of worry” has been true this year – that is, markets can often rise despite a backdrop of negative news. Following a sharp fall in April when tariffs were first announced, they have risen again and ended the year in positive territory.
It’s a timely reminder that staying invested through periods of short-term volatility is often the best course of action. Unpredictable market movements are a normal part of investing and happen regularly for a wide range of different reasons.
There are two key components of our investment approach at Aware that help during these periods – and have delivered for our members.
The first is to invest in an actively managed diversified portfolio of investments across different asset classes, sectors and geographical locations.
The second is to stick to our long-term strategy, which is focused on the long-term dynamics we expect to drive investment returns into the future.
