Composure Rewarded in FY25

June marked the end of the financial year, with financial markets delivering positive returns across several asset classes.

That’s despite several market risks emerging throughout the past year, namely President Trump’s capricious tariff policy and ongoing conflicts in the Middle East and Europe.

We highlight a useful study that discusses why, even with perfect foresight, markets don’t move as we may expect them to.

Please click here to read our June 2025 markets report as a PDF.

Robust FY25 Returns

Financial markets delivered another positive year for investors, with nearly all asset classes posting gains. However, it wasn't entirely smooth sailing—both equities and fixed income experienced fluctuations throughout the year in response to various market risks.

The re-election of President Donald Trump led to a sharp rise in market volatility, especially following Liberation Day, when a baseline 10% tariff was announced (and later delayed) on all trade partners. In many cases, country-specific tariffs—particularly those on Mexico, Canada, and China—were even higher.

Data Sources: S&P Global, Betashares, Cotality

Meanwhile, global tensions escalated with ongoing conflicts between Israel and Hamas, Ukraine and Russia, and rising hostilities between Israel and Iran, all increasing the risk of broader international involvement.

Presented with those events this time last year, an investor may be inclined to sit out the year and reevaluate at a later date. A rational line of thinking would be that several wars, both military and economic in nature, would be contrary to positive investor returns.  

Crystal Ball Fallacy

However, how we think markets should perform and how they actually perform often differ, as highlighted by an experiment conducted by US-based advice outfit Elm Wealth.

The firm provided the front page of the next day’s Wall Street Journal to 118 young adults trained in finance – 15 front pages, one for each day between 2008 and 2022.

Each participant was given $50 and was tasked with growing the money by trading stocks or bonds. Put simply, the students knew the future;s they just had to work out how markets would respond.

Despite having the front page of the newspaper in advance, the participants performed poorly. The average return was just 3.2% ($51.62). One in six went bust, while about half lost money.

The same task was given to five professional traders, who performed significantly better than the sample group, achieving a median return of 60%.

However, they correctly predicted market movements only 63% of the time (compared to 52% for the sample group), with their stronger returns largely attributed to superior risk management and bet sizing.

• Takeaway 1: Financial markets are unpredictable, often moving in ways that don’t seem obvious or make sense (even when knowing the future). That’s why we advocate for a long-term approach to investing, instead of reacting to short-term market noise.

• Takeaway 2: When making active investment decisions, risk management is imperative. When reviewing portfolios, our investment committee weighs both the upside of investments and the potential downside, striking a balance between building wealth with preserving capital. We do this through prudent portfolio construction and rebalancing weightings where appropriate.

Australian Economy 

Financial markets moved decisively to price in a third interest rate cut in July, as inflation concerns abated and economic growth came in softer than expected.

The monthly consumer price index report undershot expectations, with underlying inflation falling to 2.4%, down from 2.8% in April. While the Reserve Bank of Australia (RBA) will prefer to wait for the more comprehensive quarterly release, this does reinforce an easing bias.

The economy grew just 0.2% in the March quarter (1.3% annually), weighed by a continuation of tepid household and business demand, flat government spending and to a lesser extent, extreme weather events.

Image Source: ABS

Notably, gross domestic product (GDP) per capita was -0.2%, recording the seventh negative result in the past two years. In other words, without immigration, the Australian economy would be decreasing in size.

To that end, the RBA will likely ease monetary policy again soon. Markets are pricing a shoo-in 25 basis point reduction; however, the RBA may opt to wait for the more comprehensive June quarter inflation report to confirm inflation is under control before easing further.

Equities

The decision for the US to enter the Israel-Iran conflict failed to disrupt equities, with the announcement of a ceasefire 12 days later triggering a rally into the month-end. The S&P 500 added 4.96% for the month and closed just shy of its all-time high.

Similarly, closing marginally below its all-time high, the S&P/ASX 200 gained 1.28% in June to 8,542 points. Accounting for the reinvestment of dividends, the local benchmark returned 13.8% over the past year.

It’s worth noting that much of the past year’s gains have been attributed to multiple expansion, rather than earnings growth.

That is best exemplified by the tremendous rise in the Commonwealth Bank, which posted a 46% share price gain for the past 12 months despite operating income increasing 1% in its most recent market update.

Looking forward, equities will need to deliver better earnings growth to support future returns.

Fixed Income

After selling off in May, fixed income recovered in June, aided by expectations of further rate cuts in the United States and the Eurozone. The US Federal Reserve kept monetary policy on hold, citing concerns over tariff policy reigniting domestic inflation.

In response, President Trump called for Chairman Jerome Powell to resign and suggested he would appoint a new chair as soon as September.

Powell and Trump have competing goals: Powell wants to tread cautiously until the impact of tariff policy is clear, while Trump is desperate to reduce government borrowing costs. Powell’s term as Chairman expires in May 2026. 

The Bank of Japan said it would taper its bond purchasing program in addition to walking back interest rate rises. The Bloomberg Global Aggregate Bond Index finished the month 0.9% in AUD terms, for a one-year return of 5.4%.

Locally, fixed income yields fell (when yields fall, prices increase) in response to the March GDP report and confirmation that inflation continues to stay within the RBA’s target band.

Commodities

Commodities return to the fore in June, led by a resurgence in oil prices amid an escalation in the Israel-Iran war. Oil hit US$80 in intra-day trading when the United States struck Iranian nuclear facilities, however settled to US$68 post the ceasefire agreement.

The price bump will likely prove fleeting as it’s expected that OPEC+ will announce further production increases in July. Goldfinished the year 44% higher in AUD terms, capping a stellar run for the precious metal.

Platinum, a little-known metal primarily used in auto manufacturing, surged higher demand from China and supply challenges originating in South Africa. The metal jumped 28% in June alone, however the rally is unlikely to be sustained.

Currencies

The Australian dollar performed strongly in June, reaching its highest point against the greenback since November. Optimism regarding US-China trade talks initially buoyed the local currency before a sell-off in the US dollar sparked renewed momentum.  

The Australian dollar has been under pressure since the back end of 2024, when it became clear a second Trump administration would renew its hostile trade stance towards China. As our largest trading partner, a retracement in the Chinese economy would impact demand for our iron and energy resources.

The greenback continued to weaken against major currencies, as investors and central banks reconsider its role as the global reserve currency. The US Dollar Index has fallen over 10% this year as policy uncertainty and President Trump’s capricious personality have given investors pause.

Moreover, repeated attempts to undermine the Federal Reserve's independence, combined with rising federal deficits, have eroded the long-standing perception of the United States as a stable and reliable economy.

General Advice Disclaimer: The information and opinions within this document are of a general nature only and do not consider the particular needs or individual circumstances of investors. The Material does not constitute any investment recommendation or advice, nor does it constitute legal or taxation advice. Zuppe International Pty Ltd (ABN 12 628 405 952)

(The Licensee) does not give any warranty, whether express or implied, as to the accuracy, reliability or otherwise of the information and opinions contained herein and to the maximum extent permissible by law, accepts no liability in contract, tort (including negligence) or otherwise for any loss or damages suffered as a result of reliance on such information or opinions.

The Licensee does not endorse any third parties that may have provided information included in the Material. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Therefore, any stated figures should not be relied upon. The investment return and principal value of an investment will fluctuate so that an investor’s investments, when redeemed, may be worth more or less than their original cost.