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Investment Markets Update – May 2025

As we approach the halfway point of 2025, investment markets around the world are navigating a delicate balance between optimism and uncertainty. Geopolitical events, central bank policies, and inflation data are combining to create a complex market environment. For Australian investors, understanding how these developments shape portfolios is more important than ever. Here’s an overview of recent global activity in key markets and what it could mean for your financial plan and investment strategy moving forward.

Australian Investment Markets: Rebound Amid Cautious Optimism

April brought a strong reversal in Australian equities, with the S&P/ASX 200 closing higher for six consecutive sessions to cap off a volatile month. Large cap shares led the charge, posting a 3.81% gain after being down more than 7% mid-month. Investor confidence was buoyed by improved trade sentiment between the US and China, a solid earnings season, and a rebound in key growth sectors.

Tech and communications stocks outperformed, following the lead of US chipmakers and software firms, while energy stocks surged on rising oil prices. Notable performers included Life360, which rose over 9% after posting strong sales figures, and Woodside, which gained 3.4% on the back of renewed investor appetite in the energy sector. Meanwhile, the consumer discretionary and utilities sectors lagged slightly, weighed down by disappointing results from companies like Aristocrat and ongoing cost pressures.

On the monetary policy front, the Reserve Bank of Australia kept the official cash rate on hold at their last meeting, but all eyes are on upcoming meetings amid strong wage growth. The wage price index rose 0.9% in Q1 2025, ahead of forecasts, and is now tracking 3.4% annually. While this is a win for household income, it complicates the RBA’s outlook. Markets are now pricing fewer interest rate cuts this year than previously expected—three instead of five.

Bond yields responded accordingly. The Australian 2-year yield dropped 41bps to 3.27%, and the 10-year yield dipped 22bps to 4.16%, reflecting a still-accommodative stance despite the more moderate easing trajectory. With inflation appearing to moderate and the labour market still tight, investors remain cautiously optimistic that growth can continue without triggering another inflation spike.

US Market: Tariffs, Tech, and the Inflation Tug-of-War

April was a rollercoaster for US investors and investment markets, largely driven by geopolitics. President Donald Trump’s early-April announcement of sweeping tariffs sent shockwaves through markets. A proposed 10% blanket tariff on all imports—escalating to 34% for Chinese goods and 25% for foreign-made cars—sparked initial panic. US equities fell sharply mid-month, with the S&P 500 down nearly 11% before clawing back most of the losses after the administration announced a 90-day pause for negotiations.

Tech stocks played a key role in the recovery. Nvidia and AMD surged after announcing multibillion-dollar deals to supply semiconductors to Middle Eastern data centres, fuelling renewed optimism in AI-driven growth. The Nasdaq jumped 1.6%, while the broader S&P 500 edged up 0.7% by month’s end. AI, cloud infrastructure, and green energy were major contributors, while healthcare and materials stocks underperformed.

Inflation data added fuel to the recovery. The US Consumer Price Index rose just 0.2% in April, bringing the annualised rate down to 2.3%—its lowest point since early 2021. The news eased concerns about persistent inflation and reignited debate around the Federal Reserve’s next steps. Though no meeting occurred in April, Fed officials have hinted that they’re cautiously optimistic, with Vice Chair Philip Jefferson noting “meaningful progress” toward the 2% inflation goal.

Still, uncertainty lingers. The Fed is unlikely to move decisively without consistent, multi-month data confirming inflation’s retreat. Investors are watching upcoming jobs data and speeches from Fed Chair Jerome Powell closely for direction. As of now, expectations for aggressive rate cuts have tempered, with markets instead pricing in a slow and steady easing path.

Asian Investment Markets: Riding the Wave of Trade Easing

Markets across the Asia-Pacific region performed strongly in April, buoyed by easing trade tensions and promising earnings reports. The region was one of the biggest beneficiaries of the 90-day truce between the US and China, with investors betting on a stabilisation of global supply chains and the return of export demand.

• Hong Kong’s Hang Seng Index soared 2.3% in April, led by heavyweight tech companies like Alibaba and Tencent. JD.com also rallied over 3% after beating quarterly revenue expectations. These gains reflect renewed investor confidence following the lifting of certain US tariffs and China’s easing of restrictions on Boeing aircraft imports. These moves symbolise a broader softening of tensions between the world’s two largest economies.
• In mainland China, the Shanghai Composite climbed 0.9%, aided by policy support and improved industrial output figures. The Chinese government’s re-engagement with Western trade partners—particularly its decision to reduce tariffs and allow more tech imports—gave local markets a much-needed boost. However, ongoing concerns remain around property sector debt and broader economic restructuring.
• South Korea’s Kospi also enjoyed a strong month, up 1.2% as semiconductor stocks like SK Hynix surged. The country benefited from the same tech tailwinds propelling US and Australian markets, especially with rising demand for AI chips and cloud infrastructure. The region is now seen as a critical part of the global semiconductor supply chain, making it a focal point for investor attention.
• Japan was more subdued, as the Bank of Japan’s cautious stance on tightening policy continues to suppress yen strength, supporting exporters. Overall, Asian markets have reaped the rewards of easing global tensions, but remain vulnerable to policy reversals or escalation in US-China trade negotiations.

What It Means for You

Market movements can often feel distant, especially when driven by political headlines or central bank announcements, but the ripple effects are very real. For superannuation holders and personal investors, the recent market recovery may offer relief—but it’s also a reminder of how quickly sentiment can shift. With the RBA likely to slow its rate-cutting cycle, mortgage holders may not see the relief once expected. At the same time, equity markets are climbing, creating opportunities to reassess your asset mix.

Are you positioned to benefit from an AI-driven tech rally? Is your portfolio too exposed to rate-sensitive assets? Staying diversified, watching interest rate trends, and reviewing your investment goals regularly can help ensure your financial plan remains on track even when markets are colatile. Now more than ever, speaking with a trusted financial adviser can make all the difference. For investors, the best response is not panic, but preparation.

If you’re unsure how your portfolio stacks up in today’s environment, now is the time to review your financial plan. At McKinley Plowman, we help clients navigate uncertainty with confidence and clarity.

Call us today on (08) 9301 2200 or get in touch online to book a consult with one of our advisers.

written by:

Justin McMillan

Financial Adviser Justin McMillan has been with McKinley Plowman for several years, following our acquisition of his practice Smartwealth. He firmly believes that while financials, investments, and strategies are important in an individual's financial plan, they are simply the vehicles to allow clients to get where they want to be. Justin takes a holistic and rounded approach and focuses on the individual, taking the time to listen and understand what drives and motivates his clients.