Wealth Effect Group Month in Review – June 2025

Market Overview – May 2025

Global Sentiment Improves

In May, global financial markets continued their recovery, driven largely by a cooling of trade tensions between the US and China. Both countries agreed to pause tariff increases for 90 days, which helped ease fears of a global economic slowdown. This shift encouraged investors to return to riskier assets like shares, pushing markets higher across the board.

Australian Market Highlights

Strong Market Gains

The ASX 200 Index rose by 4.2% in May, building on April’s 3.6% gain. This momentum was supported by optimism around trade and a more supportive interest rate environment. Technology stocks led the charge, with the sector jumping nearly 20%. Other strong performers included:- Energy (+8.6%)- Communications (+5.5%)- Financials (+5.1%). Standout Companies- Life360 surged 51.9% after reporting better-than-expected revenue and profits.- Technology One rose 36.8% on strong half-year results and upgraded forecasts.- WiseTech and Xero also posted double-digit gains, reflecting investor confidence in tech. However, not all companies fared well. Nufarm dropped 38.2% due to a disappointing performance in its Seeds division.

Interest Rates & Economy

The Reserve Bank of Australia (RBA) cut the cash rate by 0.25% to 3.85%, the lowest in two years. This move was aimed at supporting the economy amid signs of slower household spending.- Inflation is easing and now sits within the RBA’s target range (2–3%).- The unemployment rate held steady at 4.1%.- Consumer confidence improved slightly, bouncing back from a sharp drop in April.

United States

Market Performance

The S&P 500 rose 6.2%, outperforming most global peers. The rally was driven by:- Strong earnings reports, with over 75% of companies beating profit expectations.- Continued strength in technology stocks.- Hopes for tax and regulatory reforms that could benefit smaller companies. Inflation & Spending- Inflation remains under control, with the core PCE index (the Fed’s preferred measure) rising just 0.1% in April.

Retail sales were flat, suggesting consumers are becoming more cautious, possibly due to lingering tariff concerns. The Federal Reserve kept interest rates unchanged, signaling a wait-and-see approach as it monitors inflation and economic growth.

Other Global Markets

Europe- European stocks rose, helped by positive trade talks with the US.- Germany’s DAX jumped 6.6%, while the UK’s FTSE 100 lagged slightly (+3.3%) due to weaker performance in defensive sectors. Emerging Markets- Emerging markets gained 3.7%, but underperformed developed markets.- China rose modestly (+1.9%) as economic data was mixed.- India and Brazil saw weaker performance due to currency issues and rising interest rates.

Property & Infrastructure

Australian Property- Home prices across major cities rose 0.5% in May, with Darwin (+1.6%) and Perth (+0.7%) leading the way. This marks the second month of broad-based growth, supported by lower interest rates. Global Infrastructure- Listed property trusts (A-REITs) in Australia gained 5.0%.- Global infrastructure investments also performed well, returning 4.4% for the month and over 20% over the past year.

Bonds & Interest Rates

Global Bond Markets- Bond markets were calmer in May, though US Treasury yields rose slightly.- The US government’s credit rating was downgraded by Moody’s, citing rising debt and budget concerns.- Japan’s bond yields also rose, drawing investor interest away from US markets.Australian Bonds- Australian bond yields edged higher, reflecting global trends.- The market expects up to three more rate cuts by the RBA this year, potentially bringing the cash rate down to 3.10%.

Commodities & Alternatives

Commodity Prices- Commodities were the worst-performing asset class in May.- The S&P GSCI Index fell 8.8%, dragged down by weaker prices in metals and agriculture.- Gold was flat, while oil rebounded slightly to $60.79 per barrel.

Geopolitical Update: Middle East Tensions and Market Reactions

Israel-Iran Escalation and Regional Instability in recent weeks, renewed military action between Israel and Iran has significantly heightened tensions across the Middle East. The conflict, which has involved direct strikes and retaliatory actions, has raised global concerns about the stability of the region, particularly around the Strait of Hormuz, a critical chokepoint for global oil shipments. Oil Market Volatility One of the most immediate effects has been on oil prices, which have surged due to fears of supply disruptions.

Brent crude has climbed above USD $90 per barrel, with analysts warning that further escalation could push prices well beyond $100, especially if shipping lanes are compromised or if sanctions are expanded. Higher oil prices are feeding into broader inflation concerns, particularly in energy-importing countries. This could complicate central banks' efforts to manage interest rates, especially as many were beginning to pivot toward easing monetary policy.

Market Reactions United States The S&P 500 and Nasdaq have shown increased volatility, with investors rotating out of high-growth tech stocks and into defensive sectors like energy and utilities.- Bond yields have edged lower as investors seek safety in US Treasuries, reflecting a risk-off sentiment.- The Federal Reserve has acknowledged the geopolitical risks but remains focused on domestic inflation and employment data. Australia- The ASX 200 has been relatively resilient, supported by strong performance in energy and mining stocks, which benefit from higher commodity prices. However, sectors sensitive to global growth such as consumer discretionary and travel have come under pressure.

The RBA is closely monitoring the situation, particularly for any inflationary spillovers from rising fuel costs. Global Markets- European markets have been mixed, with energy-heavy indices like the FTSE 100 holding up better than others.

Emerging markets, particularly those in the Middle East and North Africa, have seen increased capital outflows due to geopolitical risk. Gold has rallied as investors seek safe-haven assets, while global bond markets have seen a flight to quality.