The Australian sharemarket ended the week slightly lower, following mixed sector performances. We saw rebounds in Technology (+6.6%) and Consumer Discretionary (+2.5%) stocks, offset by the Energy (-4.0%) and Health Care (-4.3%) sectors. Commodity prices were mixed, with the cyclically driven iron ore (-2.7%) and oil (-3.6%) prices lower. Meanwhile gold, commonly considered a safe haven asset, unsurprisingly ended the volatile week +6.6% higher. The price of iron ore and Australian miners more broadly continued to be under pressure, as the tariff war between China and the US endured.
US sharemarkets rebounded strongly last week despite significant volatility. Major indices jumped after briefly approaching bear-market territory. Trade developments dominated market sentiment. US President Donald Trump unexpectedly announced a 90-day pause on reciprocal tariffs for nations negotiating with the US, triggering a market rally. This came just a week after those policy measures were announced. However, tariffs on China escalated dramatically to 145%, prompting China to retaliate at 125%. Tech stocks (+9.7%) broadly outperformed, while homebuilders (-5.4%) and healthcare (+1.2%) related stocks were more muted. Corporate reporting season kicked off late in the week, with major banks like JPMorgan (+12.3%), Wells Fargo (+2.5%), BlackRock (+6.8%) and Morgan Stanley (+8.3%) all reporting above expectations. That being said, management portrayed less optimistic guidance, in part due to the uncertainty surrounding Trump’s policy agenda.
European sharemarkets were also volatile last week, driven largely by US tariff developments. Trump’s surprise 90-day pause on new reciprocal tariffs initially provided relief, although substantial other new duties, including 25% tariffs on autos, steel, and aluminum, remain in place. Travel & Leisure (+2.0%), retail (+2.2%) and banks (+0.4%) stocks outperformed, while healthcare (-4.5%) and automakers (-4.1%) underperformed. The tariff situation moderated interest rate cut expectations in the region. That being said, the market still anticipates the European Central Bank will cut up to three times by September, with the deposit rate potentially reaching 1.75%.
Well, what an eventful few weeks! Recently it has felt like each day brings months’ worth of new information to the table. With that, news inadvertently becomes dated very quickly. Despite this, the Investment Committee and advisors have done their best to communicate with clients, where appropriate, as we closely monitor the situation. See below last week’s recap and the Investment Committee’s perspective.
The ‘Trump Put’
At the start of last week, the general market belief was that US President Donald Trump was willing to let financial markets suffer as much as necessary to get what he wants. The rhetoric became Main Street over Wall Street, businesses over financial markets. However, this belief was abruptly challenged on 9 April, when Trump announced a 90-day reciprocal tariff pause. Part of the announcement included a reduction in reciprocal tariff rates for many countries to the baseline 10%. Trump’s justification being that these countries had not reacted and showed willingness to come to terms with the US. Notably then, if those countries were ‘rewarded’, China was punished for its retaliation. The tariffs charged on Chinese exports to the US remain in place and were raised to an exorbitant 145%.
In financial terms, a put option gives its holder the right to sell an asset at a predetermined price, effectively acting as insurance against price drops. Metaphorically, a 'put' suggests a safety net that limits potential losses. Hence the term, the ‘Trump Put’, as the US President moved to stabilise markets. In his words, “people were jumping a little bit out of line. They were getting yippy”.
In response to the tariff pause, markets rebounded considerably. It was one for the history books. The intra-day move of 10.8% in the US S&P 500 was the fourth biggest low-to-high swing in recent history.
For context, the US S&P 500 finished the week up +5.7% and remained -10.1% lower this calendar year-to-date. Australia’s ASX 200 jumped +4.5% in the session after Trump’s announcement, ending the week -0.3% lower and -5.2% this calendar year.
Cutcher & Neale Investment Committee’s Perspective
The Investment Committee was, and remains, moderately defensively positioned in the Model Portfolios. Cash allocations in our equity portfolios are elevated and sit between 8%-10%.
Trump’s reciprocal tariff pause gave some respite, signalling that he does not intend to upend financial markets. That being said, we recognise this is just a ‘pause’ and that other new non-reciprocal tariffs remain in place. Further, the ongoing tit-for-tat with China will continue to create uncertainty. We have just begun Trump’s ‘negotiation phase’.
As a result, the Investment Committee believes the portfolios continue to remain appropriately positioned. Cash continues to be held in excess, ready to capitalise on any opportunities that may arise. Europe is one area in particular we are looking for value. Meanwhile, the companies most exposed to US tariffs have been tactically reduced to limit risk.
Australian March labour force data will be in the spotlight this week, with consensus estimates for 20,000 jobs added to the economy. This comes after the surprise weakness seen in February, where 52,800 jobs were lost. This datapoint will help inform the RBA’s interest rate decision next month.
Overseas, Chinese economic growth figures and the European Central Bank’s interest rate decision will be important. Meanwhile, leading indicators from the US, including Retail Sales and various housing datapoints, will update us on how households are faring.
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