The strongest financial year since the recovery

The Australian share market closed the financial year on a high, delivering a near 10% return, which is its strongest performance since the COVID-19 recovery. June alone saw continued gains for the ASX 200, supported by easing concerns over US tariffs and improving investor confidence. Wall Street has also remained resilient, with the S&P 500 surging to a four-month high in June, driven by optimism around potential rate cuts and smoother trade negotiations. However, US tariffs pose inflationary risks, potentially prompting rate hikes that could temper this optimism. While Australia is somewhat insulated from US tariffs, concerns linger over the federal government’s $1.5 trillion investment in the US.

In Australia, the Reserve Bank cut interest rates by 25 basis points in May, bringing the cash rate down to 3.85%. While domestic demand and household incomes show signs of improvement, forecasts for further rate cuts are divided, with some anticipating a July cut while others now expect one in August due to moderating tensions in the Middle East.

Following the record lows experienced earlier this year, the Australian dollar climbed to a seven-month high, closing June at around 65 US cents. This strength is largely attributed to broad US dollar weakness, with the USD falling to a three-year low.

Core inflation in Australia has dropped to its lowest level since 2021, providing some relief to households and businesses. However, oil prices experienced sharp weekly declines throughout June, as the Middle East conflict intensified. This volatility continues to pose challenges for global inflation and energy markets.

While global uncertainties have been persistent this quarter, markets have shown remarkable resilience and equity prices are now somewhat disconnected from fair value in some sectors, mainly tech. Australia’s relative insulation from US tariffs and improving domestic indicators provide a cautiously optimistic outlook.

Investors should still remain vigilant. US equities are seemingly expensive vs long run averages and geopolitical issues, or internal US government policy developments could quickly change sentiment from optimism to caution in coming months.

Guardian Investments Pty Ltd ABN 18 608 506 261 is a Corporate Authorised Representative of Guardian Associates Pty Ltd AFSL 238281. This page reproduces commentary published in July 2025 and is general advice only. It has not been tailored to your objectives, financial situation or needs, and the figures were current at the time of writing. Past performance is not a reliable guide to future returns. Seek personal financial advice before acting on it.