When markets become volatile, we usually try and get some commentary out that helps explain in more detail what is happening and what to expect in the near future.
Over recent weeks, we have seen the Australian Share Market fall approximately 9%, with international markets dropping at a similar rate. Typically, these drops come with a lot of media noise, which can be disconcerting and worrying, and this time it is no different.
To help put some context to this recent market movement, I have attached an article from AMP’s Chief Economist Dr Shane Oliver. You would have read his articles before, where he makes understanding the market changes easy to understand, and in this case, he has done the same. I have highlighted in orange some key points for your attention.
I have also provided below some text from an email sent to me by Morningstars Investment Specialist Ross Cassidy, who has a similar view to Shane Oliver.
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Hey Dave,
Since the beginning of the year, global stock markets have delivered mixed results, almost the inverse of recent years. Initially, people were optimistic about the US economy with markets priced for US exceptionalism to continue. Economic policies under the Trump presidency were expected to be very favourable for markets, especially the US. However, recently, stock prices in the US have fallen while other regions have delivered positive results. In fact, the US market even went into a ‘market correction’ down over 10% from its all-time high. Here are some of the reasons for this:
- US stocks, especially mega caps and technology stocks, had outperformed in 2023 and 2024 and expectations for further gains had push valuations to unsustainable levels.
- The US government-imposed taxes on goods from countries like Mexico, Canada, and China, potentially making trade more expensive.
- Elections in Germany and the US’s mixed feelings about helping Ukraine have led European countries to spend more on defense, boosting the share price of defense companies in Europe. This has also increased growth expectations for Germany and Europe supporting stocks in the region more broadly.
- Positive news about Chinese companies has boosted their stock prices.
In simple terms expectations for the US market were very high and expectations for other markets very low, meaning it didn’t take much ‘bad news’ to push US markets down or ‘good news’ to push the like of China and Germany into near bull markets.
As a result, US stocks, especially big tech companies, have not performed well, while stocks in other countries, particularly China, Europe, and the UK, have done better. This has proven to be a positive for Morningstar’s portfolio given how they were positioned coming into the beginning of 2025.
The chart below shows this divergent performance since the start of 2025:
Lessons for Investors
- Price Matters: Focusing on the difference between price and intrinsic value is crucial. Overpay, and there is a greater chance of losing money in the long-term.
- Uncertainty: It’s important to have a diverse mix of investments to handle unexpected market changes.
- Robust Portfolios: Investors should prepare their portfolios to withstand different economic and market situations.
- Don’t panic: Volatility can bring with it opportunities to enhance a portfolio and deliver long term returns. Some US Technology companies are starting to look more attractive
The investment team at Morningstar continues to focus on finding good deals on quality assets and building robust portfolios, even when the market is uncertain.
Cheers,
Ross Cassidy
Investment Specialist (VIC/TAS/SA)
Morningstar Investment Management, Australia
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The key point from both Ross & Shane is to turn down the noise and stay true to your long-term investment strategy, whoever if you have any questions or concerns, please reach out and we will be more than happy to talk you though the situation and help put your mind at ease.
Kind regards
Dave Schultz | Director & Principal Adviser
FChFP, Adv Dip FS (FP), Dip FMBM, Grad Cert (Mgt)
Phone: 08 8391 6446 | dave@encountergroup.com.au
