Weekly recap
What happened in markets
The Australian sharemarket finished ahead last week, despite a relatively flat iron ore price and a decline in the price of oil. These movements held back the Energy (-2.4%) and Materials (-1.3%) sectors, however, were more than offset by the Financials (+3.1%), Consumer Discretionary (+2.3%) and Information Technology (+3.5%) sectors. Those sectors mainly benefited from positive risk sentiment abroad, and lacking direct commodity exposure, though some positive company specific news also helped. For example, HUB24 (+17.6%) reported its latest Funds Under Administration figure of $120.9B, up 7% from three months prior and ahead of estimates.
US sharemarkets performed strongly last week, buoyed by broad-based gains across all sectors, outside of Energy. The US company earnings season kicked-off in earnest. Netflix’s (+13.9%) report was a highlight, after it posted better-than-expected paid memberships and net adds across all geographies. From a macro perspective, the early days of President Donald Trump’s administration filled the equity market with a sense of cautious optimism. A lack of immediate tariffs eased some anxiety, while the announcement of a government endorsed AI infrastructure project, called Stargate, boosted names like NVIDIA (+3.6%), Oracle (+14.0%) and Softbank (+13.7%).
European sharemarkets experienced ongoing strength, represented by the STOXX Europe 600 Index’s fifth consecutive weekly gain. Market sentiment in the region was supported by a lack of immediate tariffs enforced by Trump following his inauguration. Meanwhile, news of a friendly call between Trump and Chinese President Xi Jinping left scope for a more rational trade policy pathway. This, along with better-than-expected Purchasing Managers’ Index (PMI) data in the Eurozone, led to an improved economic outlook for the region last week. From a sector perspective, Travel & Leisure (+2.1%), Construction & Materials (+2.0%) and Banks (+2.1%) were among the strongest, while Telecommunications (-3.1%) and Oil & Gas (-1.6%) were the worst.
Stock & sector movements
What caught our eye
Donald Trump officially took office last week, marking the start of his second term as President of the United States. Global financial markets have been quick to respond, reflecting a mix of optimism and caution, as investors digest early policy signals and anticipate the broader implications of a Republican-controlled Congress.
The initial sharemarket response has been relatively upbeat, with US equities gaining momentum, despite talk of market frothiness. Last week, the S&P 500 rose 1.7%, and since Trump’s victory in a few months ago, the index has gained 2.9%. This reflects investor expectations of pro-business policies, including deregulation and potential corporate tax cuts. However, bond markets reacted with more caution, as concerns over fiscal discipline raised expectations for higher treasury bond yields.
Like most of what he does, Trump’s inauguration speech was simple, divisive and to some, exaggerated. It was entertaining to say the least. For example, the President made statements like, “The Golden Age of America begins right now”, “I will, very simply put America first” and “A short time from now, we are going to be changing the name of the Gulf of Mexico to the Gulf of America”.
Since the inauguration, Trump has outlined some key policy initiatives and signed a number of immediate executive orders. So far, these are the economically impactful highlights we were drawn to:
- The creation of the Department of Government Efficiency (DOGE), headed up by Elon Musk, with the goal of cutting down government bureaucracy and improving productivity.
- The removal of former President Joe Biden’s 2023 executive order on artificial intelligence (AI) safety. Trump saw this as an impediment to the US’ competitiveness in AI development. Along those lines, a US$796B Government sponsored AI project, called Stargate, was announced and will focus on building critical technology infrastructure. Key partners we know of include Oracle, Softbank, OpenAI, NVIDIA and Microsoft.
- Delaying the ban of TikTok for 75 days, giving its Chinese-based company time to potentially sell its US segment.
- The removal or pause of several key policies relating to the Democrat’s Inflation Reduction Act (IRA), especially around electric vehicles. This began the shift in US energy policy away from sustainability toward traditional fossil fuels.
- Reinstatement of Trump’s “Remain in Mexico” policy from 2019, which was halted in 2022 by the Biden administration. This will include stopping all illegal entry and beginning the process of returning millions of immigrants to their home countries.
In just one week since Trump’s inauguration, we’ve seen a whirlwind of new policies and shifts in direction, highlighting the rapid pace of change ahead. With winners and losers inevitably emerging, we expect these conditions will give particular credence to making active and well-informed investment decisions over the next four years.
The week ahead
This coming week will be critical for Australia, as the upcoming inflation print on Wednesday will be an important consideration when the RBA makes its February interest rate decision.
Internationally, the US Federal Reserve will hold its monetary policy meeting this week, where market participants expect the cash rate to be left unchanged at 4.25%-4.50%. The European Central Bank will also make its latest interest rate decision, where another 0.25% cut is expected, taking its policy rate to 2.75%.
Portfolio Company Reports
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.
