ASX to start 2025 with a hangover from Wall Street’s New Year’s Eve declines

The US benchmark surged 23 per cent in 2024, stoked mostly by the hype around artificial intelligence breakthroughs. But gains slowed in the final quarter of the year, as the pace of the rally raised concerns and investors grew jittery about factors such as President-elect Donald Trump’s protectionist policies and the possibility of fewer interest rate cuts from the Federal Reserve.

The S&P 500 fell 2.5 per cent in December, marking its weakest return since April.

“November and early December were very concentrated at the top of the market, so it didn’t take much once those names took at breather for markets to lose momentum,” wrote Walter Todd, president and chief investment officer at Greenwood Capital Associates in the US. “Valuations are elevated, there are a lot of unknowns regarding new administration and the move higher in rates have been problematic for stocks.”

Still, the 2024 gains in the US left the Australian market in the dust. The ASX finished the year a tad worse than it did in 2023 amid exacerbating cost-of-living pressures and rising interest rates. Losses over the past two days of the year trimmed its 12-month return to 7.5 per cent, short of the market’s 7.8 per cent gain in the year before.

Loading

Analysts view Trump’s inauguration on January 20 as the first major test for the Australian sharemarket in 2025, which is likely to be followed by the Australian Reserve Bank’s interest rates decision on February 6.

Some of Trump’s policies spell trouble for global markets. AMP chief economist Shane Oliver said Trump’s looming presidency was among the factors weighing down the Australian dollar.

“We know that tariffs can put up the currency proposing tariffs, which will be bad news for countries like Australia heavily exposed to exports,” Oliver said.

IG market analyst Tony Sycamore found that the threat of tariffs on China – Australia’s biggest trading partner – “isn’t a good thing” for domestic trading.

“We still don’t know the outcome of what Trump’s tariffs will be, and won’t know until January 20, or the days after that.”

While the prospect of increased tariffs has accelerated inflationary fears, Trump’s agenda is also forecast to stimulate growth for big tech, industrial and mining stocks, and the banks, which are expected to enjoy increased borrowing demand as interest rates are lowered in 2025.

“Trump is quite supportive of the stock market in general,” Jessica Amir, a market strategist at Moomoo, said in an interview last week. “Cutting taxes, regulation and red tape is really good for tech stocks, especially the chip sector.”

The RBA is expected to cut interest rates as early as February, as underlying inflation falls further and unemployment rises. The federal election, slated for some time between March and May, might prompt an increase in government spending, although it is unlikely to influence short-term economic policies.

With Bloomberg