Market Trends: May 2025

Major asset class performance

• Global equities bounced back solidly in May, helped by a postponement in planned US tariff increases as well as resilient US corporate earnings and economic activity.
• Australian equities also rose (though slightly less than global equities). A widely anticipated RBA rate cut was the main local highlight. 
• Global fixed-rate bonds declined modestly. This reflects a risk-on back-up in bond yields and emerging concerns around the US budget deficit. Australian fixed-rate bonds posted a small positive gain, reflecting steadier local bond yields. 
• Gold prices were steady in the month following solid gains in the ‘safe haven’ in earlier months.  

Source: Bloomberg, Betashares. Cash: Bloomberg Australian Bank Bill Index; Australian Bonds: Bloomberg AusBond Composite Index; Global Bonds: Bloomberg Global Aggregate Bond Index ($A hedged); Gold: Spot Gold Price in $US; Australian Equities: S&P/ASX 200 Index; Global Equities: MSCI All-Country World Index in local currency and $A currency (unhedged) terms. Past performance is not indicative of future performance.  

Fixed-rate bond trends

• Easing global growth concerns led to a modest reduction in the local year-ahead rate cut expectations last month. That said, markets still expect three RBA rate cuts. This would take the cash rate from 3.85% to 3.1% by the end of 2025.
• In the US, rate cut expectations fell more notably. The market now only expects two rate cuts this year instead of four. This would take the Fed funds rate from 4.3% to 3.8% by year-end. 
• A general easing in bond yields since October last year has allowed local fixed rate bonds to modestly beat cash over this period. However, the longer-term trend since late 2022 has been choppy. The prospect of further rate cuts should support bond returns relative to cash over the coming year. 
• Local credit spreads narrowed a little in May – continuing a narrowing trend that has been evident since late 2022. 
• Local fixed-rate bonds have modestly outperformed global bonds in recent months. However, the relative performance since late 2022 has been choppier. The outlook for local versus global bonds remains relatively neutral. 

Source: Bloomberg, Betashares. Australian bonds: Bloomberg AusBond Composite Bond Index; Global Bonds: Bloomberg Global Aggregate Bond Index ($A hedged). 

Global equity trends

• The MSCI All-World Price Index bounced back 5.4% in May after three consecutive monthly declines (which amounted to a 6% cumulative loss). The index ended May only 1% below the January-end high.
• The rebound resulted in the price-to-forward-earnings (P/E) ratio rising to 18.0. This is a little bit below the January-end high of 18.6. An 18 P/E ratio also remains at the top end of the range over the past decade or so.
• Earnings expectations ticked up a little in the month, bucking a trend of earnings downgrades over recent months. Current expectations still imply 7% growth in forward earnings over the remainder of 2025 and 12% growth in 2026.  
• With valuations still somewhat elevated, continued market gains will be reliant on falling bond yields and/or continued resilience in the corporate earnings outlook. 

Source: Bloomberg, LSEG, Betashares. Global Equities: MSCI All-Country World Index. Global Bonds: Bloomberg Global Aggregate Bond Index ($A hedged). You cannot invest directly in an index. Past performance is not an indicator of future performance.

• Among select Betashares global equity ETFs, financials ( BNKS Global Banks Currency Hedged ETF ) and gold miners ( MNRS Global Gold Miners Currency Hedged ETF ) have generally performed best so far this year.

• Technology ( HNDQ Nasdaq 100 Currency Hedged ETF ) has enjoyed a relative performance bounce in the past two months. Healthcare ( DRUG Global Healthcare Currency Hedged ETF ) has underperformed in this period. The relative performance of Global Quality ( HQLT Global Quality Leaders Currency Hedged ETF ) stocks has levelled out so far this year after modest underperformance in 2024. 

Source: Bloomberg, LSEG, Betashares. Relative performance versus the MSCI All-Country World Index (local currency terms) for the indices which the relative ETFs track.  You cannot invest directly in an index. Past performance is not an indicator of future performance.

Australian dollar

• The Australian dollar modestly strengthened last month from US64.0c to US64.3c.
• With iron ore prices softening so far this year and the year-ahead expected cash rate differential easing relative to the US, weakness in the US dollar has been the main support for the Australian dollar in recent months.
• Although normally considered a safe haven in times of global market stress, the US dollar has been undermined of late by US-centric concerns. Should tariff concerns escalate, there may be more US dollar weakness and Australian dollar strength down the line. 
• Bigger picture, the US dollar remains expensive based on long-run valuation metrics. This should favour a firmer Australian dollar over time. 

Australian shares

• Australian equities lifted with the S&P/ASX 200 up 3.8% in May.
• The lift came despite further weakness in forward earnings expectations. Instead, it reflected a gain in the price-to-forward earnings (P/E) ratio. The P/E ratio is back at recent highs of 18.6.
• The forecast 12-month growth in Australian forward earnings of 8% is less than the 12% expected globally. However, local earnings expectations remain in a stronger downward trend and P/E valuations are now modestly above the global benchmark. This situation does not favour relative Australian equity outperformance. 

Source: Bloomberg, LSEG, Betashares. Australian Equities: S&P/ASX 200 Index. Australian Bonds: Bloomberg AusBond Composite Index. You cannot invest directly in an index. Past performance is not an indicator of future performance.

• Among select Betashares Australian equity ETFs, financials ( QFN Australian Financials Sector ETF ) and quality ( AQLT Australian Quality ETF ) have generally held up well so far this year, while technology ( ATEC S&P/ASX Australian Technology ETF ) has bounced back relatively strongly in the past two months. 
• Performance among other ETFs has been relatively steady, though with resources ( QRE Australian Resources Sector ETF ) still tending to underperform.  

Source: Bloomberg, LSEG, Betashares. Relative performance versus the S&P/ASX 200 Index for the indices which the relative ETFs track.  You cannot invest directly in an index. Past performance is not an indicator of future performance.