ASX Set to Begin 2025 with a Weak Start from Wall Street's Year-End Declines

The Australian share market is expected to start the new trading year lower, as futures indicate declines in early trading on Thursday, following a downturn in Wall Street on New Year’s Eve.

On December 31, ASX futures were down by 77 points, or 0.9 percent, at 8148, the most recent trading figure available before the market closed for the New Year’s Day holiday on January 1. Also noteworthy, the Australian dollar was traded at 61.91 US cents.

The New York Stock Exchange ended the year on a downbeat note, which prompted the drop in ASX futures. Wall Street concluded 2024 on a low, with the S&P 500 and Nasdaq 100 seeing declines over the last four trading sessions, resulting in a loss of over 1 trillion US dollars in market value among large-cap companies. Despite these recent losses, the S&P 500 has risen more than 50 percent since the beginning of 2023, marking the most significant two-year gain since the late 1990s.

In 2024, the US benchmark experienced a remarkable increase of 23 percent, largely driven by excitement surrounding advances in artificial intelligence. However, the rally moderated in the final quarter of the year, as investors expressed worries regarding several factors, including potential protectionist policies from President-elect Donald Trump and an anticipation of fewer interest rate reductions by the Federal Reserve.

The S&P 500's drop of 2.5 percent in December signaled its weakest performance since April. Walter Todd, president and chief investment officer at Greenwood Capital Associates in the US, commented, "The concentrated ascent in November and early December meant that once the leading stocks paused for breath, the market lost momentum relatively quickly. Valuations have risen to elevated levels, and uncertainties regarding the new administration, along with rising interest rates, have added stress to stock performance."

Concerns among Australian market analysts have emerged over the potential impact of another Trump administration and the fragile situation of the Chinese economy on local markets in 2025, especially following a strong 2024. Looking ahead, analysts believe Trump's inauguration on January 20 could pose a significant test for the Australian share market, closely followed by a Reserve Bank of Australia interest rate decision scheduled for February 6.

Trump's policies, particularly regarding new trade tariffs, could disrupt global markets. IG market analyst Tony Sycamore stated that the immediate actions taken by Trump post-inauguration will be crucial for the Australian share market's health in 2025. Sycamore remarked, "Forecasts indicate that the stock market may perform well if Trump decides to prioritize tax cuts and regulatory simplification rather than tariffs."

The looming threat of increased tariffs raises inflationary concerns; however, Trump's agenda may also invigorate large technology, industrial, and mining sectors, with banks likely to see a surge in borrowing demands as interest rates are predicted to decrease in 2025.

Jessica Amir from Moomoo stated in a recent interview, "Trump generally supports the stocks, particularly through measures like tax cuts, which benefit the technology sector, especially companies within the chip industry."

AMP Chief Economist Shane Oliver anticipates that the Australian dollar may have a turbulent outlook under Trump, even though he indicated that reduced US spending could also lead to upward pressure on the Aussie dollar. Oliver elaborated, "As the US economy is likely to cool down next year, it could result in lower service inflation, hence contributing to lower inflation overall. It’s possible that the Aussie dollar could drop below 60 cents or rise to the high 60s, depending on the Federal Reserve’s actions and the effectiveness of Chinese stimulus measures."

The RBA is expected to announce interest rate cuts by February, especially as inflation trends downward and unemployment figures rise. Additionally, the federal election scheduled between March and May may lead to increased government spending, although such actions would likely have limited short-term effects on economic policies.

ASX, WallStreet, 2025