NEWS + VIEWS – 04/07/2025
MARKETS
The conflict between Israel and Iran appears to have been contained with share markets hardly blinking. In the US, they have been reaching record highs and the gains seem to be spreading out from the technology stocks to the broader market. Domestic markets are also hovering near record highs.
Overall, the financial year returns to 30 June 2025 were good. Banks, strong brands (e.g. Wesfarmers’ (WES) Bunnings, international funds and infrastructure were the standouts while resources, small caps and healthcare (e.g. CSL) lagged. Interest bearing securities delivered healthy 5-6% yields over the course of the year.
INTERESTING STATISTICS
Investors are always looking to the past to guide their predictions of the future. We have referred previously to the ‘Sell in May and go away’ adage that reflects a strong trend where share markets are weaker over the May to November period.
Predictably though, we have run across another set of statistics suggesting this year might be different. There is a strong correlation between positive returns in May and June on the S&P500 index and subsequent stronger markets for the remainder of the year. The chart below shows returns for the S&P 500 for the last 36 years where May and June were positive months (like 2025). When May and June achieved gains, the S&P 500 was up 94% of the time for the next six months. The correlation is less over the past 65 years (72%) but still strong.
Source: The Coppo Report
INTEREST RATE CUTS ON THEIR WAY
The last CPI reading showed that inflation is falling well within the Reserve Bank’s (RBA) target range. The only thing that might cause the RBA to hesitate would be the low unemployment rate. Full employment is being held up by rampant Federal and State government spending. There are significant state-run infrastructure projects that will complete over the next six months or so that will put upward pressure on unemployment.
As we have stated in a previous edition of the News and Views, the yields on the interest-bearing portion of investors’ portfolios are falling and are likely to continue that way. On the other hand, lower interest rates should boost profits and flow through to company dividends. With the gradual phasing out of bank hybrids, we have begun investing in ‘lower risk’ and slightly ‘lower return’ exchange traded funds that invest in major bank subordinated notes and other debt (e.g. QPON, BSUB).
Gerard O’Shaughnessy
P 0423 771 330
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