2025 market outlook: Navigating the post-rally world

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We may have experienced one of the most remarkable two-year rallies in US equity market history, but market strategists are already warning investors to temper their expectations for 2025. As AI continues to reshape industries and Donald Trump prepares to return to the White House, the investment landscape is becoming increasingly complex.

“After two years of a ‘rising tide floating all boats’, investors will have to swing back to quality stocks in 2025,” warns Mark Gardner, CEO of MPC Markets.

“It’s likely to be only a single-digit gain year, with many potential bumps along the way.”

The Trump effect: Tariffs and trade tensions

The president-elect hasn't waited for his inauguration to rattle markets. Trump's pre-emptive announcement of sweeping tariffs — 30% on Chinese goods and 25% on Mexican and Canadian imports — already sent shockwaves through global markets. While some see opportunity in this disruption, others fear its inflationary consequences.

"This is a good thing for those operating in the US, including Aussie companies like James Hardie Industries," notes Grady Wulff, market analyst at Bell Potter.

"But it comes at the cost of potentially driving inflation higher through the higher cost nature of domestic products compared to cheaper alternatives overseas."

China’s economic turning point

Beijing's promise of 7.5 trillion Yuan in economic stimulus has left many unimpressed.

"Much of the bad news could already be priced in," suggests Fraser Allan, head of Premium Client Services at CMC Markets.

However, Morningstar's equity market strategist Lochlan Halloway strikes a more cautious note: "Already struggling before the US election, the Chinese economy could come under more pressure if another trade war breaks out."

The next frontier for AI technology

If 2024 was the year AI captured investors' imagination, 2025 may be when it starts capturing real value. The technology is evolving beyond mere data aggregation into what Gardner calls "AI Agents," capable of completing complex tasks for users. This evolution has implications far beyond the tech sector.

"For 2025, reduced regulation will help the financial, EV and crypto stocks," predicts Greg Boland, Chief Strategy Officer at Tiger Brokers.

"The space and quantum computing sectors are also on our radar."

The commodity conundrum

One particularly compelling theme for 2025 is the divergent paths of various commodities. Copper emerges as a consensus favourite, with prices forecast to reach $10,500 per metric tonne.

"The undersupply of copper will fuel tailwinds due to its vital role in the green energy transition," explains Wulff, while also noting that "uranium is likely to continue experiencing tailwinds from the growing use of the commodity in the AI movement".

Gold, too, finds its champions. Gardner points to "the US debt spiral and lower interest rates likely to see the USD lower" as supportive factors, along with "growing tensions between President-elect Trump and the BRICS coalition".

Australian markets: The great rotation

In Australia, a fascinating narrative is unfolding.

"Looking ahead to 2025, several factors suggest a rotation from banks to miners could be in play," argues Allan. He points out that major banks like Commonwealth Bank are "trading at almost double the valuation of US counterparts," suggesting the potential for a dramatic shift in sentiment.

Halloway from Morningstar supports this perspective, adding: "The energy sector screens as the cheapest under our coverage. Woodside and Santos both trade materially below our fair value estimates."

The rate cut puzzle

Perhaps the biggest wild card for 2025 is monetary policy. While the Federal Reserve's September dot plot predicted four rate cuts in 2025, market expectations have since moderated to two, according to Boland. In Australia, futures markets are pricing in a cut to 4.1% by February, though Bell Potter's Wulff notes the RBA's reluctance to make promises, given how "inflationary pressures can rebound very quickly."

Managing risk in an uncertain market

In such a complex market environment, keeping precise track of both investment performance and risk metrics becomes more crucial than ever.

"When markets become more selective, understanding your true performance — including dividends, corporate actions, and currency impacts — can make the difference between good and great investment decisions," notes Douglas Morris, CEO of Sharesight.

The importance of monitoring drawdown risk — the peak-to-trough decline in portfolio value — cannot be overstated in 2025's potentially volatile environment. "Understanding not just how much you can make, but how much you might lose along the way, is essential for maintaining conviction in your investment strategy," Morris emphasises.

Tools to stay prepared in 2025

Having the ability to track and analyse investment portfolio performance across multiple markets and asset classes will be especially important in 2025’s challenging market environment.

Sharesight’s portfolio tracker, for example, offers the following key benefits to investors:

• Automated performance tracking including dividends and corporate actions
• Drawdown analysis and risk metrics
• Currency impact monitoring
• Correlation analysis for proper diversification
• Tax reporting and performance attribution.

“History shows that investors who maintain a clear view of their portfolio performance and risk metrics, and stay true to their investment strategy, tend to outperform those who react to every market movement,” notes Morris.

Looking ahead

As markets transition from a widespread rally to a more discriminating environment, stock selection becomes crucial. Technology and AI will likely remain popular themes, but with greater emphasis on companies enabling infrastructure and applications. The commodities sector could potentially see some gains, particularly in copper and uranium, while investors may also find value in rotating from banks to miners and energy companies.

The days of easy gains appear to be over. For those who can navigate the complex interplay of geopolitics, technological change, and monetary policy, opportunities remain — they just may require more work to uncover than in the heady days of 2023-24. In such an environment, having robust portfolio tracking tools becomes less of a luxury and more of a necessity for serious investors.

The combination of careful market analysis, strategic positioning, and sophisticated portfolio monitoring tools will be key to success in what promises to be a challenging but opportunity-rich 2025. As the market narrative shifts from broad-based gains to more selective gains, investors who maintain a clear view of both their performance and their risks will be best positioned to capitalise on the prospects ahead.

Track your performance with Sharesight

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FURTHER READING

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• Volatile markets: 3 mistakes investors should avoid