ASX Faces Lower Opening in 2025 Following Wall Street Declines

The Australian sharemarket is gearing up for a lower start in the new trading year, as futures indicate declines in early trading on Thursday following Wall Street's downturn on New Year’s Eve.

On Tuesday, December 31, ASX futures were down by 77 points, or 0.9 percent, standing at 8148, which was the last recorded price before markets closed for the New Year’s Day holiday on Wednesday. During this time, the Australian dollar traded at 61.91 US cents.

Wall Street's Impact

The New York Stock Exchange ended the year on a less than optimistic note, resulting in lower ASX futures. Wall Street’s performance suggested a subdued start to 2025, with the S&P 500 and Nasdaq 100 experiencing a pullback during the final days of the year. This decline represented a substantial reduction of over $1 trillion in market value from large-cap stocks.

Despite these recent losses, which saw the S&P 500 drop 2.5 percent in December (its weakest performance since April), the index has surged more than 50 percent since early 2023, marking one of its best two-year gains since the late 1990s.

Key factors influencing Wall Street included hype surrounding advancements in artificial intelligence. However, the enthusiasm waned in the quarter's final weeks as concerns about rising interest rates and protectionist policies from President-elect Donald Trump grew.

Local Market Concerns

The gains in the US have left the Australian sharemarket trailing behind, ending the previous year slightly worse off compared to 2023. Heightened cost-of-living pressures and increased interest rates have contributed to a more challenging environment. The losses in the final days of 2024 reduced the local market’s annual return to 7.5 percent, slightly below the previous year’s gain of 7.8 percent.

In terms of sector performance, technology firms benefited from the AI trend, while financial stocks, particularly those linked to the Commonwealth Bank, also shone last year.

Market analysts are increasingly worried about the influence that ongoing US political changes and an unstable Chinese economy could have on the Australian market as it enters 2025.

Looking Ahead

The inauguration of President Trump on January 20 has been identified as a critical moment for the Australian sharemarket, closely followed by the Reserve Bank of Australia's interest rate decision on February 6.

Trump’s policies may introduce new trade tariffs, potentially causing turbulence for global markets. Analysts emphasize the importance of Trump’s agenda in shaping the outlook for the Australian sharemarket.

“There’s a lot of speculation regarding the upcoming year. If Trump focuses on tax cuts and regulation, it could positively impact growth across sectors including technology and mining. However, the risk of increased tariffs could spark inflation worries,” stated IG market analyst Tony Sycamore.

Despite potential inflation concerns, some foresee that Trump's policies might stimulate growth for major sectors such as technology, industrial, and banks in Australia, especially if interest rates decrease in 2025.

Jessica Amir, a market strategist, highlighted how Trump’s pro-stock market stance could benefit sectors like technology.

On the currency front, AMP chief economist Shane Oliver warned that the Australian dollar might experience volatility under Trump’s administration, although U.S. economic slowdowns could also bolster the dollar’s value.

As the RBA looks to cut interest rates early in the year amidst declining inflation and rising unemployment, the upcoming federal election could prompt increased government spending but is unlikely to significantly shift short-term economic policies.

It will be essential for investors to stay informed about these developments as we transition into 2025.

ASX, Stock, Market