Global markets have seen turmoil during the start of 2025. US Equities had a strong start to the year, however, as President Trump took office and commenced his tariff trade policy, uncertainty prevailed. Equity markets sold off circa (-10%) from highs with increased volatility. Australian equity markets had a similar experience as the potential fallout from tariffs came to the surface. The turmoil in equity markets did not translate to bond markets with increased geopolitical risk seeing a shift to defensive assets.
Trumps tariff implementation and threats of retaliation tariffs across multiple countries including Canada, Mexico, China and the EU has significantly increased uncertainty for global economies. The general market thesis for higher tariffs is inflation, with many economists fearing the impact of higher prices will be negative for US consumption. A slow down driven by a weaker US consumer has some economists fearing a potential US recession.
Interestingly throughout this increased volatility equity valuations have remained stable. Top line earnings expectations have not been lowered given most of the S&P500 earnings comes from digital technology consumption and not goods impacted by tariffs. In addition, both central banks, the Federal Reserve and the Reserve Bank of Australia have plenty of room to cut interest rates on any signs of weak economic growth. The market is also yet to factor President Trump’s second stage of economic policy with significant personal and corporate tax cuts on the agenda.
The outlook for global markets is for continued volatility, especially until the state of the tariff playing field is known. Given the timing of tariff implementation, volatility is likely to persist until at least May 2025. The long-term outlook is more positive. Market’s are trading at discounts to valuation and there is potential for monetary policy easing to support growth. In Australia, betting markets have started to price in a change of government. A majority or minority government forming could prove critical for policy and bringing Australia out of its current economic grind. The result of increased global protectionism and silo economies will also likely see winners and losers in trade. Australia is closely tied to Chinese trade with risks building as tariffs increase.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a qualified financial adviser for personalised recommendations.