ASX to Begin 2025 with Wall Street's New Year Declines

The Australian share market is expected to start the new trading year on a low note. Futures have indicated a decline in early trading on Thursday, as Wall Street experienced a drop on New Year’s Eve.

ASX futures fell by 77 points, or 0.9 percent, reaching 8148 on Tuesday, December 31, which was the last trading day of the year. Markets were closed for the New Year’s Day holiday on Wednesday. The Australian dollar was trading at 61.91 US cents.

The New York Stock Exchange closed out the year with disappointing results, influencing ASX futures to head downward. Wall Street’s ending of 2024 was far from optimistic, as the S&P 500 and the Nasdaq 100 recorded losses for the fourth consecutive session, resulting in an over $1 trillion drop in large-cap market values. However, these losses were but minor setbacks in a considerable uptrend that saw the S&P 500 rise over 50 percent since the beginning of 2023, marking its most successful two-year performance since the late 1990s.

In fact, the US benchmark gained 23 percent in 2024, largely driven by excitement over advancements in artificial intelligence. Yet, as the year drew to a close, the acceleration of this rally raised concerns among investors regarding President-elect Donald Trump’s protectionist policies and the likelihood of reduced interest rate cuts from the Federal Reserve.

In December alone, the S&P 500 faced a decline of 2.5 percent, marking its weakest monthly performance since April.

Walter Todd, president and chief investment officer at Greenwood Capital Associates in the US remarked, "November and early December saw a lot of action at the market's peak, so a pause by those leading stocks quickly led to a loss of momentum across the market. Elevated valuations, a lot of uncertainty around new administration policies, and the gradual increase in interest rates have created challenges for stock prices."

Concerns remain about how the ongoing dynamics between the US and China—two of the world’s largest economies—might impact Australia’s local market in 2025 as it emerges from a robust 2024.

Analysts believe that Trump’s inauguration on January 20 could be the first significant test for the Australian stock market in 2025, followed closely by a decision from the Reserve Bank of Australia on interest rates expected on February 6.

Several of Trump's policy decisions, particularly regarding new trade tariffs, could pose challenges for global markets. IG market analyst Tony Sycamore also noted that the actions Trump takes right after his inauguration will be crucial for the Australian share market's health.

Sycamore stated, "Many forecasts suggest a positive year for the stock market if Trump follows certain paths. The outcome will depend on whether he focuses on tax cuts, regulatory reforms, and downsizing the US bureaucracy or if he opts for imposing tariffs."

While the idea of increased tariffs heightens inflation concerns, some predictions suggest that Trump’s policies could also support growth in the technology, industrial, and mining sectors, along with banks benefiting from increased borrowing demand as interest rates dip in 2025.

According to Jessica Amir, a market strategist at Moomoo, "Trump generally has a favorable outlook for the stock market. His focus on reducing taxes and red tape positively impacts tech companies, particularly the semiconductor sector."

AMP chief economist Shane Oliver foresees a "rough ride" for the Australian dollar under Trump, although he acknowledged that lower spending in the US could also provide upward pressure on the Aussie currency.

Oliver mentioned, "It wouldn’t be unexpected to see the Aussie dollar dip below 60 cents, or climb towards the high 60s if the US Federal Reserve adopts a dovish stance and if we receive significant stimulus from China."

The Reserve Bank of Australia is anticipated to reduce interest rates as early as February, especially if underlying inflation continues its downward trend and unemployment rates increase. With a federal election scheduled between March and May, there may be an uptick in government spending, although it is unlikely to have a significant impact on short-term economic strategies.

ASX, WallStreet, Decline