Market update: Riding the rollercoaster
As we move into the middle of 2025, investors could be forgiven for feeling like they’ve been on a bit of a rollercoaster. Political uncertainty, shifting inflation expectations, and lower consumer confidence have created a challenging environment, but one that has been manageable for investors with well-diversified portfolios and a long-term focus.
While markets are expected to remain volatile in the months ahead, those who have stayed the course are likely to have seen positive returns over the past year. Let’s take a look at what has been driving market movements recently.
United States
It’s been an eventful year so far. On 2 April, the US introduced a series of new import tariffs, escalating trade tensions, particularly with China. This triggered retaliatory tariffs from China, with US tariffs on Chinese goods peaking at 145% and China imposing 125% tariffs in response, along with restrictions on exports of rare earth minerals (essential for technology, clean energy, and defence industries). A temporary partial truce was reached in mid-May, with both countries scaling back tariffs, though tensions remain high and both sides have accused each other of breaches since.
The initial sharp market drop was followed by a rapid rebound. Meanwhile, escalating Israel-Iran hostilities in mid‑June, and the risk of broader U.S. involvement, sent oil prices rising and triggered brief market jitters. However stocks have largely held firm, with the S&P 500 dropping only about 1% before recovering, as of 17 June.
In broader terms, the US economy remains resilient. Unemployment remains low, consumer spending is steady, and households appear to be adjusting to the new tariff environment.
Europe
Europe’s economy is stable but sluggish. The European Central Bank cut interest rates in April to stimulate growth, but progress remains slow. Inflation is under control, but trade tensions, particularly around electric vehicle tariffs, are weighing on business confidence. Compared to the US-China relationship, discussions between Europe and the US over trade issues have so far remained relatively calm.
China
China was already under economic pressure before the recent tariff disputes. Ongoing challenges include a major debt crisis, falling house prices, and weak consumer demand. The country is also facing trade restrictions in response to its large trade surplus.
Its move to restrict exports of rare earth minerals had a significant global impact, raising concerns about supply chains. While some exports have resumed under the current truce, again uncertainty remains.
Domestically, China is attempting to boost demand through a 500 billion yuan infrastructure package and interest rate cuts, but consumer confidence notably in light of ongoing reducing house prices remains fragile.
Australia
Australia has enjoyed a relatively calm period. Inflation is easing, employment is strong, and the Reserve Bank of Australia recently cut interest rates to 3.85% to further support the economy. However, Australia’s close trade links with China mean it is exposed to any worsening in US-China relations.
New Zealand
Closer to home, the outlook is mixed but encouraging. Inflation remains within the Reserve Bank of New Zealand’s target range of 1-3%, and the official cash rate has been lowered to 3.25%. The housing market is showing signs of renewed activity, with lower interest rates encouraging more buyers.
As an export-driven economy, New Zealand is not immune to global trade tensions, but for now, the domestic picture remains relatively stable.
Staying on track through market volatility
Market ups and downs are a normal part of investing, especially during uncertain times like these. While it can be tempting to react to headlines or short-term movements, staying focused on your long-term goals is usually the best course of action. Reacting emotionally can often lead to decisions that undermine your long-term investment plan and create bad financial outcomes.
A well-thought-out investment strategy is designed to help you weather periods of volatility, and making changes based on short-term news can do more harm than good.
Diversification also remains one of the most effective ways to manage risk. Spreading your investments across different asset types and regions helps to smooth the ride and provides resilience when parts of the market are under pressure.
You’re not in this alone
If you have questions or concerns about how current events might affect your investment plan, or if you just want to review where you’re at, we’re here to help. Please feel free to get in touch with the team at NZBritannia any time.
The information contained in this publication is intended for general guidance and information only. It has not been personally prepared for you. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult with us before making any investment decision. Historical market performance may not be indicative of future market performance.