April 22, 2025
March was a turbulent month for global markets. After a strong run earlier in the year, sentiment shifted sharply. Concerns about rising trade tensions, particularly from newly announced U.S. tariffs, have rattled investor confidence and contributed to a significant market sell-off.
Why Markets Are Reacting
The trigger for this recent downturn has been a dramatic shift in U.S. trade policy. New tariffs are being introduced on goods from several major trading partners, including Australia. The aim of these tariffs is to rebalance trade, bring jobs back to the U.S., and generate additional revenue—but the way they’ve been implemented has caused concern.
The scale and suddenness of the changes have sparked fears of retaliation from other countries, escalating into a broader trade conflict. Investors are now grappling with how these changes could affect global economic growth. Early estimates suggest that U.S. economic growth could take a hit of up to 2%, and American consumers are likely to see higher prices on many goods.
Inflation and Interest Rates in Focus
Another worry is inflation. Tariffs tend to raise the price of goods, which could put upward pressure on inflation just as central banks around the world are trying to manage interest rates. If inflation rises too quickly, it limits the ability of central banks like the U.S. Federal Reserve to lower interest rates to support the economy.
Inflation expectations in the U.S. are already climbing, which complicates the outlook. In the past, similar trade actions have led to lower demand and even deflation. The coming months will be critical in determining which path we’re headed down.
Australia’s Relative Strength
While Australia is not immune to global market volatility, it’s in a relatively strong position. The local economy benefits from a stable government, strong banks, and a balanced budget. The Australian share market also has a higher weighting toward industries that tend to hold up better during uncertain times—like telecommunications, utilities, and essential services.
Our exposure to natural resources, particularly with China as a major trading partner, could also help cushion the blow if global growth slows.
Looking Ahead
It’s clear that we’re in a period of heightened uncertainty, driven by political decisions rather than economic fundamentals. Markets are trying to factor in a mix of slowing growth and potentially rising inflation—a difficult combination for investors.
However, it’s not all bad news.
Periods like these often create opportunities for long-term investors. With share prices coming down from previously high levels, quality companies are starting to look more attractively priced.
What Could Turn Things Around?
Several developments could help improve market conditions:
Final Thoughts
While the current environment can be unsettling, it’s important to stay focused on long-term goals. Volatility is part of investing, but it can also offer rare opportunities.
