As the financial year 2024/25 draws to a close, it’s time to reflect on the significant market movements and economic narratives that shaped investment landscapes globally and here in Australia. This EOFY market wrap provides LDB’s comprehensive analysis and outlines our strategic investment outlook for the year ahead.

Global market wrap: Navigating tariffs and debt concerns

Global shares finished the financial year with another strong result, posting an impressive +18.6% gain. However, this journey was far from smooth, marked by a major correction in the March/April period that saw the market dip 18% before recovering into June. The first half of the year was predominantly defined by hopes of a ‘soft landing’ for economies, as inflation continued its retreat and growth remained moderate. This narrative, however, began to shift significantly following Donald Trump’s November Presidential election win, bringing tariffs and trade back into sharp focus.

Trump’s policies and market reactions

President Trump’s announcement of wide-ranging tariffs on ‘Liberation Day,’ April 2nd, initially sparked a meltdown in the markets. While he subsequently delayed and diluted many of these tariffs, allowing the market to recover, the US Federal Reserve (the Fed) remains wary of their potential impact on inflation. Consequently, the Fed has maintained its cash rate at 4.25-4.50% since the start of the year.

Despite these tariff backflips, a relatively high level of tariffs (around 15%) persists, yet their impact on prices has remarkably not yet appeared in the data. While Trump continues to press the Fed for rate cuts, the Fed is prudently waiting to observe if inflation data picks up in the second half of 2025 before making further moves.

US fiscal policy and debt concerns

Simultaneously, Trump successfully navigated his “One Big Beautiful Bill” through Congress. This legislation extends income tax cuts and provides various company incentives but is projected to add a substantial US$3.4 trillion to the US public debt (currently US$36 trillion or 124% of GDP) over the next decade. As a result, the US has now lost all its AAA credit ratings and stands at AA+.

While the US market remains bullish on Trump’s pro-US policies, significant risks linger regarding inflation and the trajectory of the US budget deficit and public debt. The US Dollar has already shown signs of weakening, and we maintain concerns that US bond yields could rise due to the sheer volume of US bonds requiring annual issuance. Rising bond yields would have adverse implications for the US budget deficit and indeed most asset classes globally.

It is for these reasons that LDB Group continues to strategically tilt portfolios towards Australian assets. Australia benefits from much lower levels of federal government debt and retains a AAA credit rating, offering a more stable environment relative to the US, Europe, and Japan. We also advocate for diversifying global exposure away from a singular focus on the US towards other promising international markets.

Australian market wrap: Resilience amidst global shifts

Australian shares concluded the financial year with a strong gain of 13.8%. Key domestic events over the past year included inflation retreating within the Reserve Bank of Australia’s (RBA) target range (2.0-3.0%), which has paved the way for the RBA to commence an interest rate easing cycle. Additionally, the May Federal election resulted in a significant swing towards Labor, moving away from the LNP and the Greens.

Both the easing monetary policy and the supportive fiscal policy (due to elevated government spending and the proposed $17 billion in income tax cuts over FY26-FY27) are positive indicators for the Australian markets. Furthermore, energy policy is expected to remain stable, with nuclear power off the table, and Labor now accepting gas as a vital transition fuel.

The primary domestic concern remains the uncertainty surrounding global trade, particularly its impact on Asia, a major buyer of Australian commodities. The effect thus far has been mixed, with some commodities like gold, copper, and beef showing notable strength, while others such as iron ore, coal, oil, and lithium have experienced weakness. It is also worth noting that recent restrictions on student quotas, driven by accommodation shortages, have led to a reduction in education exports.

Investment outlook: LDB’s strategic view for the year ahead

The overall investment outlook remains mixed. While we maintain a generally positive view on Australia’s prospects, we retain concerns regarding the US outlook, particularly in relation to tariffs and its expanding budget deficit. US interest rates could potentially remain ‘higher for longer,’ a scenario that does not appear to be fully priced into US markets. While the US technology theme presents a clear positive, there are increasing risks stemming from global trade issues that could disrupt supply chains and impact company earnings.

Our recommendation for LDB clients is to continue tilting portfolios towards Australian assets and strategically diversify global exposure away from a concentrated US focus. We retain a cautious stance, primarily in response to the uncertainties surrounding US trade and fiscal policy. For personalised wealth management and investment advice tailored to your financial goals, contact LDB Group.