Trump’s tariffs, international wars, interest rates – we’re seeing a cocktail of factors at play that will affect sharemarket performance in 2025. So what does that mean for your investments?
Australian Investment Education founder Andrew Baxter takes us through five areas to watch for any investor, experienced or not, this coming year.
1. A tale of two halves: the US v Australia
US President-elect Donald Trump’s ‘America First’ promises of hitting China, Mexico and Canada with tariffs will shake up the global economy, no question.
At the same time, tech giants and commodities on the international market have been delivering enormous returns. The S&P 500 grew to $13 trillion in 13 months, with software company Nvidia adding $2.4 trillion to its value in the past 17 months.
Andrew, who runs courses for thousands of Australians to help improve their investment strategies, says Australia’s performance has been lacklustre by comparison.
We’re still waiting for a cut to interest rates, even as our inflation rate hits its lowest level since this whole rollercoaster ride began in 2021. Plus, with China as our number one customer for resources, we face some significant challenges ahead.
“As the Chinese economy continues to stagnate, I think it’s going to make for a very heavy headwind for resources,” Andrew tells Your Money & Your Life.
The implementation of Trump’s tariffs on China will tighten the screws even further, while we’re also yet to see how those tariffs might affect Australia more directly.
The message isn’t that you should turn your back on the ASX, Andrew says. There are many consistent performers with a lot of promise for 2025, like hearing implant juggernaut Cochlear and cloud-based accounting software company Xero.
It’s just about diversifying your mix to include US stocks at this time.
“You’ve got to be very mindful of where you’re putting your cash, that’s for sure,” says Andrew. “But I think equity, certainly in the US, is a reasonably bullish case for next year.”
2. Watch the global tech giants
The US stock market’s ‘Magnificent Seven’ (Amazon, Apple, Google, Meta, Microsoft, Nvidia and Tesla) have seen astronomical growth – growing 13.5 times larger in value since they were all public entities in 2012. High risk and high reward, by the numbers alone.
“The tech sector is a really difficult sector to justify buying based on valuation,” Andrew says. “But where it does justify itself is the unequivocal view that technology is going to be a bigger, not smaller part of the future.
“If you apply things like PE [price-earnings] ratios, it looks incredibly overvalued. If you took something that’s 70, 80 times earnings when most markets traded about 15 to 20 times earnings, it just makes no sense. But you’re buying your slice of the future today.”
Andrew predicts continued growth in 2025 for two reasons: Trump’s tariffs, which will likely protect tech stocks from overseas competition, and corporate tax cuts for the top end of town.
He says companies like Netflix and Apple, that have “stockpiled enormous amounts of money in countries that are quite tax friendly like the Netherlands and Ireland”, will probably benefit most.
The answer, once again, is diversification. “I think the biggest risk is missing an investment in tech, full stop. Having an allocation towards it is key,” he advises.
3. Keep your eyes on energy
Trump is looking to reshape the US energy dependency and wind back some of the Bidenomics policies, opening up fracking and oil exploration. This will have a clear impact on stocks that service these sectors, explains Andrew.
“So stocks like Baker Hughes, Schlumberger, Halliburton, which are all well exposed to that sort of sector of town, or just a simple ETF for people who just wanted to have a lower risk play, and more diversification like XLE [The Energy Select Sector SPDR Fund], which is a US Energy ETF,” Andrew says.
It remains to be seen how Trump’s policies will affect inflation in the US. But for now, energy is worth watching.
4. Defence stocks
While the hope is that global conflicts in Ukraine and Middle East come to peaceful resolutions sooner than later, defence stocks look to remain a key priority in the global market.
“The US has been supplying most of the weaponry that’s there,” Andrew points out. “I think the US is likely to start retooling its military.”
Submarine manufacturing is one example. “If you look at the AUKUS submarine deal, the way that is set up is that only when the US has got all the subs it needs, we get the cast-offs.
“But for companies like General Dynamics, which are involved in that manufacturing process for submarines, and those big defence contractors, I suspect that there will be some significant opportunities. A strong US means strong domestic defence spending.”
5. Interest rates
With more interest rate cuts likely to come in the US soon, Andrew’s eyes are focused on US stocks and ETFs that may benefit.
At the time of this article’s publishing, Andrew cites the significant jumps of long-term US Treasury bonds ETFs like the NASDAQ’s TLT (iShares 20+ Year Treasury Bond ETF) and TMF (Direxion Daily 20+ Year Treasury Bull).
“The US is likely to see more cuts to interest rates early into the New Year. The counterbalance to that is how inflationary some of the economic policies that come in from Trump are,” he adds. “They’re on a trajectory to continue cutting rates, which is very different than that which we see in Australia.”
Final thoughts
So Andrew’s allocations are skewed more toward the US for now. The phrase “cautiously optimistic” couldn’t be more appropriate, he says.
“It’s not being unpatriotic,” he says. “It’s just that we see no cut in interest rates in the first quarter. There’s a bit of weakness in the property market. I think tariffs are certainly going to impact our resources sector.
“Whereas, energy, tech in particular, possibly defence contractors and interest rates have formed really decent tailwind type of opportunities for the US.”
WATCH: The secrets of successful investors with Andrew Baxter
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