April 2025 Market Update
As we move into April, and hot on the heels of the recent Federal Budget, Prime Minister Anthony Albanese has announced a national election for 3rd May kicking off an April campaign centred on tax cuts and cost-of-living relief.
Meanwhile, fears of inflation in the United States and alarm about unpredictable and escalating tariffs saw sharp falls on Wall Street during March, particularly in the final week. Former President Donald Trump announced sweeping new tariffs, including a 25% tariff on almost all imported cars effective 3rd April 2025, and increased tariffs on steel and aluminum. These measures have added to the market's volatility and uncertainty.
In Australia, the events in the US, conflicts in Ukraine and the Middle East, and the start of the federal election campaign have all made their mark. The S&P/ASX 200 reacted with an almost 5% drop during March.
The Australian dollar, in the doldrums all year, improved slightly during the month before ending lower at around 63 US cents.
Economic growth was up 0.6% in the December quarter and 1.3% for the year, and household wealth climbed 0.9% in the same period. Inflation rose 2.4% in the 12 months to February, a slight softening from the previous month’s increase of 2.5%.
Consumer sentiment recorded a 4% rise in March, according to the Melbourne Institute and Westpac Bank Sentiment Index. The RBA’s decision to cut interest rates in February and a further easing in cost-of-living pressures have provided a clear lift. However, the Reserve Bank of Australia decided to leave the cash rate target unchanged at 4.10% during its March meeting, citing ongoing uncertainties in the global economic outlook.
Market Movements in Early April: A Recap
A Look Back at Recent Market Reactions
Markets have a tendency to forget quickly. The recent sharp selloff following Trump's tariff announcement might seem dramatic, but we've seen similar shocks before. For instance, in 2018, escalating US-China trade tensions triggered a 20% drop in the S&P 500. Fast forward to 2025, and while the scale of the drawdown is smaller, the intensity has increased with more extreme one-day moves, reflecting a thinner and more reactive market.
The Impact of Tariff Policies
Since the 2025 inauguration, US equity markets have been on a steady decline as tariff policies moved from speculation to reality. This drawdown has been broad-based, but we're starting to see some relative dispersion. Smaller caps and rate-sensitive sectors have underperformed, while equal-weighted benchmarks have shown some resilience.
How Markets Respond to Shocks
When we look at past drawdowns, the scale and speed may vary, but one pattern remains consistent: policy shocks often trigger sharp repricings that stabilize once the market absorbs the new regime. For example, the 2018 trade war selloff saw a 20% fall over 65 days, while the COVID-19 drawdown was deeper but shorter. The current move, at 12% over 44 days, is in line with past episodes like the 2015 China slowdown or the early 2000s recession. The key question now is whether escalation will continue or if the market will find a floor as positioning clears.
Staying the Course: The Importance of Long-Term Investment Strategies
In times of market volatility, it's crucial to maintain a long-term investment strategy. History has shown that markets tend to recover over time, and those who stay invested often benefit from the eventual rebound. Moving to cash during periods of market turbulence might seem like a safe option, but it comes with its own set of risks. Cash investments can erode in value due to inflation and may miss out on potential market gains when the market recovers
Sticking to a well-thought-out investment plan, diversifying your portfolio, and avoiding emotional reactions to short-term market movements can help you navigate through volatility and achieve your long-term financial goals. Remember, the key to successful investing is patience and discipline.