Weekly recap
What happened in markets
The Australian sharemarket declined 2.0% over the week, despite a modest 0.5% rebound on Friday. Investor sentiment was dampened by renewed recession concerns in the US, as markets grappled with uncertainty surrounding President Trump’s tariff policies. In particular, the refusal to exempt Australia from a 25% tariff on steel and aluminium added to fears of strained diplomatic relations and potential retaliatory measures. Sector performance was mixed. The Financials sector dropped 3.1%, as the major banks underperformed. The Information Technology sector also lost ground, down 4.4%, as Xero fell 5.2%, while Life360 dropped 5.8%. Elsewhere on the market, the Consumer Discretionary sector lost 3.3% and the Health Care sector shed 3.5%, while the Utilities bucked the downward trend to close 3.2% higher.
US sharemarkets extended their declines last week, with the S&P 500 briefly entering correction territory after dropping over 10% from its February peak. Investor sentiment remained cautious due to ongoing economic worries and uncertainty over new trade policies. President Trump doubled down on his tough trade approach, introducing new tariffs, including a 200% tax on EU alcohol and a 25% tariff on steel and aluminium, which led to retaliation from affected countries. There were some positives in terms of inflation data, as February Consumer Price Index came in lower than expected, however this was largely overlooked as Trumps tariff policies dominated headlines. Losses were widespread, however the major technology providers held up better, with Netflix (+3.0%) and NVIDIA (+7.9%) closing higher. The Consumer Discretionary sector (-3.7%) lost ground on recession fears, while the Health Care (-3.0%) and Materials (-2.2%) sectors both lost ground.
European sharemarkets also lost ground, as the STOXX 600 posted its largest weekly decline in three months, as it fell 1.3%, while the UK FTSE 100 recorded a decline of 0.5%. Escalating trade tensions dominated the week as President Trump’s tariffs on steel and aluminium prompted retaliatory actions from the EU, including a threat of 200% tariffs on EU spirits. As for the sectors, Energy, Utilities, and Insurance all outperformed, while Retail, Travel & Leisure, and Health Care lagged the indices.
Stock & sector movements
What caught our eye
Current Market Volatility
Recent headlines have been dominated by sharemarket volatility, much of it attributed to US President Donald Trump’s tariff policies. Late last week, the S&P 500 slipped around 10.0% from its peak in mid-February, back to September 2024 levels. While the sharemarket somewhat recovered in Friday’s session, adding back 2.1%, the weakness caused some concern about whether a more significant correction is on the horizon.
Why the Market Is Volatile
Policy uncertainty around tariffs has led companies and consumers to delay or reduce spending until more clarity emerges. We’ve seen this type of external 'shock' before: sudden developments in geopolitical events, interest-rate policy shifts, or unexpected economic data can all temporarily jolt markets. Historically, these exogenous factors often result in corrections that, while sometimes sharp, tend to rebound once the uncertainty is resolved or priced in by the market.
Putting Volatility in Perspective
Market corrections, defined as declines of 10% or more, occur roughly every 12 months on average. This shows that downturns are a frequent part of investing, rather than an anomaly.
The below table shows some economic indicators the Investment Committee monitors, compared with economic recessions in the past. These provide real insight and help cut through the noise we are experiencing. While growth concerns in the US are justifiable, especially as no one knows when the tariff announcements may stop (probably including Trump himself!), or, on the flip side, when they might be removed. What we do know, is the underlying data of the overall economic outlook remains positive and recession is not anticipated.
Investment Committee’s View
Our Investment Committee is closely monitoring both domestic and global developments. It’s worth noting that the Reserve Bank of Australia and the US Federal Reserve have the option to cut interest rates if needed. With rates rising over the past three years to decade highs, central banks now have significant firepower to respond should a prolonged slowdown be anticipated. Policy measures, such as interest rate adjustments, could help stabilise markets. Beyond that, our Investment Committee remains ready to make any necessary adjustments on your behalf if we believe changes within portfolios are warranted.
The week ahead
Locally this week, investors will gain an insight into labour market conditions through the release of the Unemployment Rate.
Overseas, attention will be on the US’s Retail Sales and the UK's Unemployment Rate, while the US and UK will announce their latest interest rate decision.
Wade is the head of the Investment Services division at Cutcher & Neale and has over 10 years of industry experience in accounting and investment advisory roles.
Ryan is our Portfolio Manager, bringing over 15 years of experience in managing multi-asset investment portfolios with a specialisation in fundamental equity analysis.
