ASX to Open 2025 Lower Following Wall Street's Declines

The Australian sharemarket is poised to start 2025 on a low note, as futures indicate declines for early trading on Thursday after a disappointing end to Wall Street's 2024 trading year.

On December 31, the last trading day of the year, ASX futures were down 77 points, or 0.9 percent, sitting at 8148. Markets remained closed for New Year's Day on Wednesday, and the Australian dollar was trading at 61.91 US cents.

Wall Street's performance set the stage for what is expected to be a tepid start to the new year. The S&P 500 and the Nasdaq 100 experienced their fourth consecutive session of declines as 2024 came to a close, wiping over $1 trillion off large-cap market values. Despite this, the losses are relatively minor when considering the S&P 500 has surged over 50 percent since early 2023, marking its best two-year gain since the late 1990s.

In 2024, the US benchmark climbed 23 percent, mainly driven by excitement around advancements in artificial intelligence. However, the rally began to slow down in the last quarter of the year. Concerns over President-elect Donald Trump’s protectionist policies and the potential for fewer interest rate cuts from the Federal Reserve prompted investor uncertainty.

December marked a challenging month, with the S&P 500 falling 2.5 percent, its weakest performance since April.

Walter Todd, chief investment officer at Greenwood Capital Associates, noted, "November and early December were very concentrated at the top of the market, so once those names took a breather, it didn’t take much for the market to lose momentum. Valuations are high, and many factors are uncertain regarding the new administration, while the rise in interest rates has been tough for stocks."

Concerns loom over the potential impact of the two largest economies, the US and China, on the Australian market in 2025, especially as the local sharemarket ended 2024 on a weaker note compared to the previous year. Specifically, the Australian market concluded the year with a return of 7.5 percent, slightly down from the 7.8 percent gain in 2023.

Regarding specific sectors, technology companies benefitted from progress in artificial intelligence, aligning with US market trends. Plus, financial stocks, led by Commonwealth Bank, saw strong performance.

Australian market analysts are now looking toward Trump's inauguration on January 20, viewing it as a significant test for the ASX in 2025. This is closely followed by the Reserve Bank of Australia's interest rate decision on February 6.

Trump’s policies, including potential trade tariffs, raise concerns about their effects on global markets. Tony Sycamore, an IG market analyst, emphasized, "Trump's actions right after his inauguration will be crucial for the Australian market's health." He added that if Trump focuses on tax cuts and reducing regulation, it could positively influence the stock market.

Market strategist Jessica Amir from Moomoo expressed optimism, asserting that Trump's agenda may boost growth for tech, industrial, and mining sectors alongside banks, which are expected to witness an uptick in borrowing demand as interest rates decrease in 2025. "He tends to be supportive of the stock market overall, especially for tech minors like the chip sector," Amir stated.

AMP chief economist Shane Oliver mentioned that the Australian dollar might face volatility under Trump, though lower US spending could also impact the Aussie dollar positively. "As the US economy cools, it may lead to lower inflation, which could benefit the Australian dollar according to various scenarios," he said.

Looking ahead, the Reserve Bank of Australia is expected to cut interest rates as inflation declines and unemployment rises. The upcoming federal election, anticipated between March and May, could prompt increased government spending; however, these events are unlikely to significantly affect short-term economic policies.

ASX, WallStreet, 2025