We are a proud member of the Financial Services Online network!
Connect with us on your favourite social media platform for the latest financial news, views, tips, tricks, resources and information.
Damien Hennessy, the Head of Asset Allocation at Zenith Investment Partners, highlights this change in sentiment as investors foresee potential inflation due to Trump's economic agenda coupled with record-high U.S. debt levels. Such dynamics could further intensify market volatility.
"Bond yields are climbing because the underlying U.S. economy has surpassed expectations, running into disinflationary headwinds seen in the last 12 to 18 months," Hennessy remarked. "This situation is now pressuring U.S. equity market valuations."
Reflecting on recent trends, back in September, low bond yields had investors bracing for a recession, with predictions for interest rates dropping to 2.8% by early 2026. Current expectations, however, have shifted towards a rate increase nearing 4%. The market has transitioned from forecasting up to nine cuts to possibly just one or two, signifying a significant turnaround.
Hennessy noted a rise in U.S. 10-year Treasury yields to 4.8%, impacting both the stock and bond markets. Concurrently, the U.S. dollar's rise has led to a depreciation of the Australian dollar to US62 cents.
"Market dynamics, driven by the anticipated rapid enactment of many of Trump's policies in 2025, hinge on sustained economic growth around 2.8%," explained Hennessy. "Yet, this optimism may face challenges as not all policies may be quickly executed as some expect."
With bond yields nearing 5%, Hennessy posits that bonds could offer substantial value for long-term investors, prompting a reconsideration of portfolio compositions to include bonds and duration. He added, "Until now, rising bond yields have been largely ignored by equity markets, but there comes a threshold where they begin to challenge equity valuations significantly."
The correlation between high bond yields and reduced risk premiums in equities necessitates confidence in continued earnings growth. Hennessy anticipates that the tension between bond yields and equity valuations will dominate market discussions throughout 2025.
Addressing the Australian market, Hennessy observed that local conditions remain challenging. "Valuations domestically are stretched, confronting Australian equities with a difficult environment. The sentiment may benefit slightly from a rate cut, but overall, the Australian share market faces considerable challenges."
The insights provided in this article are based on an analysis originally reported by Yasmine Raso on January 22, 2025.
Published:Wednesday, 22nd Jan 2025
Source: Paige Estritori
| Interest Rate Cuts: A New Dawn for Australian Housing? 11 Feb 2025: Paige Estritori As Australian homeowners anticipate potential rate cuts by the Reserve Bank of Australia (RBA), many are eyeing possible lucrative outcomes in the property sector. This anticipated rate reduction could herald a significant uplift in property values across key markets, potentially delivering substantial financial benefits to those prepared to sell soon. - read more |
| Market Tumult as Trade Tensions Escalate: ASX Closes Lower 05 Feb 2025: Paige Estritori The Australian stock market experienced volatility on Tuesday, closing at a lower point after news broke that trade negotiations between the United States and China had failed, leading both countries to impose new tariffs. - read more |
| Market Tremors as Trade Tensions Escalate 03 Feb 2025: Paige Estritori The Australian stock market and currency faced significant setbacks as US trade policies unfolded, signaling a turbulent economic outlook. The recent imposition of tariffs by the Trump administration has sparked concerns of a looming global trade war, with China, Australia's principal trading partner, at the center of the conflict. - read more |
| House Ownership in Melbourne: A Growing Challenge 30 Jan 2025: Paige Estritori In Melbourne, the dream of owning a standalone house is slipping away for many potential buyers. The disparity between house and unit values has become increasingly pronounced, making detached homes a distant goal for many. According to data from CoreLogic, as of December 2024, typical Melbourne houses cost buyers 51.1%—or $310,202—more than units. - read more |
| The Top 5 Most Popular Motorcycles in Australia and Why They're Great Choosing a motorcycle can be an exciting, but overwhelming experience. With so many options on the market, it can be difficult to know where to start. That’s why we’ve compiled a list of the top 5 most popular motorcycles in Australia to help make your decision easier. - read more
|
| Effective Budgeting Strategies for Managing Motorcycle Loan Repayments There's nothing quite like the thrill of hitting the open road on your motorcycle. The freedom, the exhilaration, and the sense of adventure are unparalleled. For many Australians, motorcycling isn't just a mode of transport; it's a passion and a lifestyle choice. - read more
|
| Bike Loans vs. Personal Loans: Which One Should You Choose? When it comes to buying a new motorcycle, financing is often the most suitable solution for most people. There are two main options available: bike loans and personal loans. It's important to understand the key differences between the two to help you make an informed decision. - read more
|
| 5 Things to Consider Before Taking a Loan for Your Dream Motorcycle The wind in your hair, the roar of the engine, and the freedom of the open road – there's nothing quite like the thrill of owning your dream motorcycle. For many enthusiasts, it's not just a mode of transportation; it's a lifelong ambition, a symbol of adventure and independence. But unless you've been saving for years, the prohibitive cost could make this dream seem out of reach. - read more
|
|
Pros and Cons of Buying a New Motorcycle vs a Used One in Australia If you’re considering purchasing a motorcycle in Australia, one of the critical decisions you'll face is whether to buy a new or used one. This decision can significantly impact your finances, so making an informed choice is paramount. - read more
|
|
Navigating Aussie Weather: Motorcycle Maintenance for Every Season The importance of motorcycle maintenance cannot be understated, especially when faced with the unique and shifting weather conditions that span our vast continent. From the scorching heat of the Outback to the wet and windy coastline, traversing Australia on two wheels requires your machine to be as adaptable as you are. - read more
|
|
Financing Your First Motorcycle: Tips for Australian Riders Securing a motorcycle loan is a significant step for many Australians who dream of hitting the open road on two wheels. Not only does it provide personal freedom, but it also offers a sense of adventure and independence that’s hard to match. - read more
|
|
Securing a Bike Loan in Australia: The Essential Document Checklist Finding the freedom to explore the open roads atop a new motorcycle can be an exhilarating prospect. However, before you rev up those engines, understanding the financial gateway to securing a bike loan in Australia is essential. Preparation with the right documents can streamline your application process, setting you on the path to hassle-free approval. - read more
|