Your Market Update - December Summary
The ASX 200 Accumulation Index rose by 3.8% in November. This performance was largely driven by the clarity provided to Australian investors following the US election.
This performance and other economic data again strengthened the view that interest rate cuts will be some time away yet. Out of the 11 sectors, 9 recorded gains. Information Technology led the way with a 10.5% increase, followed by Utilities (+9.1%), Financials ex-Property (+7.0%), and Consumer Discretionary (+6.9%). However, Energy (-0.7%) and Materials (-2.6%) lagged.
Information Technology continued its impressive momentum, returning 68.3% over the last 12 months. In contrast, investors were cautious in the Energy and Materials Sectors due to concerns over additional US tariffs impacting the already stuttering Chinese economy.
Developed Markets outperformed Emerging Markets in November largely driven by a rally in US Markets, post-election results. Developed markets gained 5.18% (MSCI World Ex-Australia Index (AUD)) versus a -3.07% return (MSCI Emerging Markets Index (AUD)).
US markets rallied post-election results with the S&P 500 closing at an all-time high, gaining 8.8% for the month (in local currency terms). The FOMC’s decision to cut interest rates by another 25 basis points also contributed to a broad market rally.
Asian markets suffered most visibly in November based on Trump threatening to impose tariff’s when he assumes office. The Chines Hang Seng Index fell -4.23% while the Japan Nikkei 225 Index fell -2.22%.
The bond market displayed mixed signals throughout November. Early in the month, investors anticipated volatility and potential inflationary pressures following a Trump victory. However, as uncertainty subsided, yields began to fall, and the month concluded on a more favourable outlook.
While the Consumer Price Index (CPI) showed signs of easing, the Reserve Bank of Australia’s (RBA) preferred measure, core inflation, rose month on month indicating a sticky inflationary environment. This suggests the RBA is unlikely to cut interest rates until the new year. In addition, the labour market showed signs of cooling, with wage growth decelerating and consumer confidence stabilising however, broader economic uncertainty remains. Amidst this backdrop, the 2 year and 10 year Australian government bond yields dropped 8 and 16 points respectively.
In the US, the Federal Reserve implemented a 25-basis point rate cut, in line with softening job market and bringing inflation closer to the 2% goal. As the month unfolded, the bond market started to correct its initial overreaction to the potential inflationary policies under the newly elected administration, with yields on the 2 year and 10 year US government bonds falling by 3 and 12 basis points, respectively.
The S&P/ASX 200 A-REIT Accumulation Index TR reversed the negative result in October, finishing the month up 2.48% in November. The index is up 26% YTD. Similarly, global real estate equities also reverted, increasing 2.7%. Australian infrastructure saw the largest reversal of the three indexes, bouncing back 4.98% after falling 4.75% in October. The index has delivered a return of 9.65% YTD.
The Australian residential property market experienced an increase of 0.1% Month on Month (as represented by CoreLogic’s five capital city aggregate). Perth continued its strong run and was the biggest riser (+1.1%, 21% YoY), followed by Adelaide and then Brisbane. Melbourne was the worst performer with a fall in value of -0.4%, with Sydney (-0.2%) and Hobart (-0.1%) also falling.
