Quarter in Review: March 2025

The market was strong in January, however gave back its gains and more over in February and March as concerns towards weaker economic growth and inflation were reignited by the introduction of Trump tariffs. This was compounded by an unwind of the AI trade catalysed by DeepSeek in late January. This saw investors seeking shelter, drastically pivoting from high beta growth to defensive stocks and gold.

1. Global markets: The ASX300 Accumulation Index was down 2.9% over the quarter, still faring better than the US market which posted its worst quarter since 2022 with the S&P500 Index down 4.3% and tech-heavy NASDAQ down 10.3%. Interestingly enough, investors shifted bets to markets previously thought “uninvestable” as European and Chinese markets rallied. The STOXX Europe 600 Index was up 4.6% and Hang Seng Index was up 17.8%.
2. Sector performance: Sector performance was highly varied over the quarter, with 5 of 11 GICS sectors positive and the latter negative. The spread differential between the top and worst performing sector was 21.2%. The best performers were Utilities (+3.0%), Industrials (+2.7%) and Communication Services (+2.5%). The worst performers were IT (-18.2%), Healthcare (-9.0%) and REITS (-6.6%).
3. Reporting Season: The Feb-25 reporting season marked one of the more volatile instances in recent memory, with average intraday swings of ~7% on result days. We observed the highest number of 3 standard deviation stock price moves on the day of results – larger than both the GFC and COVID. This was likely a combination of both market factors (eg. DeepSeek, Trump tariffs, reinflation fears) and stock specific factors. While the ratio of beats to misses was positively skewed at 3:2, failure to live up to high multiples and expectations going in saw stocks drift lower. Companies who beat on average rewarded up 2% but misses punished down 5%. Typical volatility around earnings season is to be expected across small caps, however it was noteworthy to observe the historically high levels of blow ups across the ASb v X100 stocks (eg. NAB, GMG, CSL, COH).
4. Rates and Yields: Bonds rallied in the US with the 10-Yr down 36bps to 421bps, with concerns over weakening economic growth overriding the potential reinflationary dynamic propelled by Trump tariffs. In other words, the stagflation narrative has started creeping into investor concerns. The Federal Reserve held rates at 4.5%, revising up inflation expectations from 2.5% to 2.7% however also revising down US GDP from 3.1% to 1.7%. We are observing signs of US consumer weakness, with the University of Michigan Consumer Sentiment index declining to 57.0 in the latest March reading down from 71.1 in January. The AUS 10-Yr was flat at 4.38% despite the first RBA rate cut of 0.25% to 4.1% in February. While February CPI posted 2.4% moderating slightly from 2.5% in January, the RBA outlook remains cautious with cash futures pricing in a 75% chance of a rate cut in May, down from 85% previously.
5. Commodities: Commodities were generally strong with the Bloomberg Commodities Index up 7.7%, led by precious metals notably Gold which rallied 18% to close at an all time high of $5,000/oz. This has been driven by worries around the US fiscal outlook, continued Central Bank purchasing, ETF buying flows and a safe haven hedge against uncertainty. Conversely, thermal coal was the weakest commodity down 17.8%, a consequence of oversupply in key production regions in India and China. Other major commodities posted modest gains, with Iron Ore up 1.7% and Brent Oil flat at 0.1%.
6. Corporate news: Beyond Goodman’s equity raise and James Hardie’s bid for Azek over the quarter we saw three more takeover bids all by foreign companies. A $1.9bn bid for Domain by US real estate marketplace owner Co-star, a $670m bid for Mayne Pharmaceutical by US based Cosette Pharmaceutical and Dollarwise a Canadian retailer’s $259m bid for Reject Shop.