A video update from Adviser Erin Coyle, and Principal of Principa Investment Consultants, Steve Garth on the Financial Market Review for the March Quarter 2025.
Transcript:
Hello and welcome to Strategy First's quarterly market update. My name is Erin Coyle and I am one of the advisers here at Strategy First. I’m pleased to be joined today by Dr Steve Garth, who is on our investment committee, to talk about what's happening in the markets recently and it seems, Steve, that all of the action has come out of the US recently.
It has indeed Erin, it's been a quarter that you can define by Trump, tariffs and trade wars, all led to a tumultuous time in markets and, it really all happened overnight at the start of the new quarter when those tariffs got announced.
But the uncertainty around tariffs has been what's driving the market in the quarter; and let's start in the US with the US market. Now normally I would show the S&P 500 index, I think most people know that's the main US index, but you may not know it's made up of two different exchanges.
One exchange is the NASDAQ, this is where the high-tech stocks are listed: Apple, Google, Meta, Nvidia, and the other is the New York Stock Exchange, it's where the older industrial companies are listed. They're about 50/50 of the S&P 500 and you can see it really is a tale of two different cities there.
The New York exchange, it's okay it's up 2%, not doing very much, but the NASDAQ had a great run over the 12 months, but it's really come off in the quarter. It was hitting its peaks in February and then came right down, so again all due to uncertainty around what the tariffs might mean; the NASDAQ down by 10% (what they call a correction).
Correct and seems to me like all of the movement has been in those text dots. What's been causing that?
That's a really good question, there's really two reasons behind that: the first one is the tariffs, if they're introduced as stated, are quite inflationary for the US (and tech stocks don't like inflation, no one really likes inflation, but tech stocks really don't like it - they don't like higher interest rates) but that's only part of the reason.
If you look at the chart here, we're showing one of the largest stocks on the NASDAQ and therefore one of the largest stocks in the US and in the world, it's Nvidia.
The stock that no one's really heard of two years ago but it's now just huge. It makes chips for the artificial intelligence industry, and it was up an extraordinary 179% in 2024, so you may not be surprised to know it's down by 20% in the quarter.
A lot of that is due to the fact that a competitor has been released into the market in the likes of a Chinese cheaper AI chip called 'Deep Seek' (faster, cheaper, more efficient). Suddenly the market's gone 'we've thought Nvidia will just keep on going forever but maybe we've got a little bit too enthusiastic around that' and so people are revaluing not only Nvidia but the tech sector in general, and that's why you've seen that market fall the hardest.
And it seems we're not immune in Australia, how's the rest of the world fared?
Unfortunately when you're looking at the rest of the world, we always look at it by way of a big index (which is the MSCI World Index) and 70% of that is in the US - it's the biggest equity market in the world. So if the US has a bad day, the rest of us don't feel too good either.
You can see here that the market is negative, or the developed markets are a little bit negative, for the year mainly due to the US. But another big part of that world index is Europe, and that's up by 10%. So, it sort of speaks to why you should be diversified across countries.
Now you'll see there Australia's negative. Australia is a very small part of the world market, it doesn't really move the needle on that one.
And so, with all of these talks about inflationary impacts, what does that actually mean for interest rates? I know you don't have a crystal ball, but what could we be expecting over the course of the coming months?
This is what we do know, and again the world is totally uncertain with all the announcement of tariffs overnight, it's actually more uncertain than it than it was. So, if the tariffs are introduced as they are, then inflation is going to come up, but economic growth is going to go down.
That puts central banks in a really bad position between a rock and a hard place. When inflation's going up, central banks want to raise rates, which is what they did a couple of years ago as a way of cooling inflation, but when the economy is slowing down, central banks want to lower rates to simulate that economy.
So, at the moment they kind of can't do either, so the expectation at the moment to expect interest rates maybe to remain on hold a little bit longer. I don't think they're going to go up, it's more likely they'll go down because the economic consequences of tariffs will win out over the inflation.
In other words, it's more likely that economies will start slowing, and here in Australia we're still seeing inflation coming down, so I'd expect the central banks to lower rates, but it might be on hold as the confusion and uncertainty around tariffs plays out.
What does that mean from a portfolio standpoint? Is there anything that we should be doing to actually respond to these changes? What do we do to make sure that we still remain on track?
When it comes to financial markets the best thing, always, is to do nothing. Anyone who starts playing around with a portfolio in times of uncertainty always comes out worse off than if they had have left it alone. So, what we do as investors is we stay in the portfolio that's been designed by us by our advisor, that's the right profile to meet our goals, and we stick with it through thick and thin.