Latest investment update

Market review

The June quarter was marked by a sharp increase in share market volatility. Trade tensions escalated after the Trump administration announced new ‘reciprocal’ tariffs on a range of trading partners. This provoked retaliatory threats between countries, most notably between the US and China.  

Sentiment improved after the announcement of a 90-day pause on US tariffs, and trade tensions gradually cooled.  By June, concerns around rising tensions in the Middle East briefly caused some minor market volatility, although the risks of a broader regional conflict was largely shrugged off following a ceasefire between Israel and Iran. The MSCI World Index (hedged into AUD) returned 9.6% for the quarter. 

In the US the S&P 500 returned 10.6% for the quarter as solid corporate earnings growth buoyed sentiment. The US Federal Reserve kept interest rates on hold throughout the quarter, despite pressure from President Trump. Concerns from the Federal Reserve regarding the uncertain impact of tariffs on inflation were the primary motivation for keeping interest rates on hold.  

Australian equities performed broadly in line with developed markets, with the ASX 200 Accumulation Index returning 9.5% for the quarter. The information technology sector outperformed materially, returning 26.9%. The materials sector was the weakest, returning -0.4%. The RBA Reserve Bank of Australia cut the cash rate at its May meeting to 3.85%.  

In currency markets, the US dollar was weighed down by concerns over fiscal sustainability and the impact of the Trump administration’s trade policy. The Australian dollar gained over the quarter (+5.2%), supported by improving risk sentiment, weaker sentiment for the US dollar, and comparatively steady domestic conditions.

Looking ahead

Despite all the attention-grabbing news of President Trump’s ‘Liberation Day’ tariff announcements, and their various changes and subsequent delays, the June quarter ended as a surprisingly good one for share market investors. A new low in the geopolitical environment and even the prospect of war between Iran and Israel/US only temporarily slowed market optimism. It seems investors are willing to discount any short-term uncertainty in the expectation of a return to a normal operating environment soon enough.

However, we believe that risks to the economy remain and could take time to become evident. Tariff rates in the US, while still under negotiation, will rise to around 15-20%, the highest level since the 1940s. Trade rules that have guided the global economy for decades have been thrown away and supply chains have barely any time to adjust. It will take time to see how individuals and business respond. Notwithstanding the uncertainty, a degree of resilience is evident in recent economic data. Corporate earnings are also holding up well.

For now, the US and global economy has remained surprisingly resilient in the face of the ongoing uncertainty around the tariff and trade headwinds. In the US, unemployment remains low and inflation has trended down – all of which is supportive for risk assets such as equities. But we believe that the majority of good news is already priced into markets, so we expect to see episodes of volatility in markets for the foreseeable future.

Accordingly, we want to ensure we maintain a well-diversified portfolio focused on delivering a consistent pattern of returns in all market environments while also maintaining robust levels of liquidity. It’s also vital to ensure that we’re disciplined in not reacting to short-term noise and maintain an investment strategy that’s focused on delivering strong long-term returns for our members.