Rudi's View | May 14 2025
By Rudi Filapek-Vandyck, Editor
Holding out a proverbial carrot in front of global financial markets is a highly effective strategy.
It worked for the first Trump administration, as it has worked on many other occasions too. After we all digested the shock of an all-out tariff attack on global trade, markets can now bask in the positive news flow towards a less trade-restrained environment for the US economy and its many trade relations.
The most visible consequence is that equity indices are either at or near their all-time record high, or quickly recapturing most of the 'correction' that followed upon the first tariffs shock.
In Australia, the ASX200 is back into positive territory year-to-date, led by defensive segments and with energy, healthcare and small caps as notable laggards. Shares in Wesfarmers ((WES)) and Hub24 ((HUB)) are both setting new all-time highs, both coincidentally around $80.
If we didn't know any better, we might conclude the outlook for markets has now been de-risked, but that might prove too simplistically optimistic, even though recent news flow has surprised to the upside, and this includes corporate updates both domestically and in the USA.
Profits In The USA
Without getting too deeply into the finer details, but the current quarterly results season in the US has, overall, supported the strong bounce in share prices.
Doom scenarios and bearish forecasts aside, corporate America has clearly not been torpedoed by White House antics and the world's largest megacaps have mostly surprised to the upside, including through confidence and ongoing investments into GenAI.
Equally important though, most positive outcomes are situated in Growth and AI-levered segments, with smaller cap companies noticeably revealing more risk and disappointments.
No surprise thus when market strategists at Citi declare their ongoing preference for Growth and large caps, as these are the defensives with positive momentum and ongoing upside potential in 2025.
Profits In Australia
In Australia, the picture looks similar, but different.
Institutional investors do have a preference for larger cap exposures. Growth stocks such as Pro Medicus ((PME)), WiseTech Global ((WTC)), Xero ((XRO)) and TechnologyOne ((TNE)) have equally quickly recaptured positive momentum, even as WiseTech management issued a cautionary note about the quarters ahead.
The same observation can be made for the likes of Life360 ((360)), Megaport ((MP1)), Netwealth Group ((NWL)), and REA Group ((REA)), though not for the likes of IDP Education ((IEL)), Readytech Holdings ((RDY)), Serko ((SKO)), or SiteMinder ((SDR)).
Local AI-beneficiaries have equally sprung to life again, also helped by a re-assuring fresh mega-contract announcement by data centres operator NextDC ((NXT)).
Share prices of Infratil ((IFT)), DigiCo Infrastructure REIT ((DGT)), Goodman Group ((GDG)) and Macquarie Technology ((MAQ)) have equally experienced renewed buyers' interest, though all are still well off from price levels witnessed earlier in the year.
As any experienced veteran investor will confirm, smaller cap companies not supported by a megatrend such as data centres represent a higher risk proposition when stubborn inflation, tariffs and slowing growth dominate the outlook.
Australian portfolios have had their share of profit warnings already, but it's only fair to say the general picture hasn't been all negative in recent weeks.
On Monday, as I am writing Weekly Insights, Dyno Nobel ((DNL)), previously known as Incitec Pivot, has managed to outperform market expectations with an interim performance that has gone backwards from last year, but by less than most forecasters had penciled in. Its share price is thus being rewarded on the day.
Dyno Nobel's 'outperformance' follows in the footsteps of Orica ((ORI)), Kelsian Group ((KLS)) and Maas Group Holdings ((MGH)); all companies that had been in the sin bin and previously ignored, but a better-than-feared operational performance has re-invigorated the share price.
Irrespectively, there's no denying Australian investors have already seen plenty of profit warnings and operational disappointments in recent weeks, and it's probably best to expect more of the same for the weeks ahead.
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