Quarterly market commentary - June 2025

Several global share markets reached new all-time highs in the recent quarter. 

That may appear surprising given the tenor of the daily headlines which seem to resolutely focus on only the most uncertain or worrying events. The recent quarter was again dominated by headlines featuring conflict in Ukraine and the Middle East, mass deportations in the US, tariff-driven trade upheaval, and ongoing cost of living issues.

These are not trivial matters.

And yet, businesses the world over are continuing to deploy their resources and capital in the pursuit of profits and growth. They are adapting their business plans to the changing environment around them, uncertain as it has been, and are on average rising to this challenge. A few will fail; that’s always a potential outcome of taking business risk, but many more are succeeding. Some are succeeding spectacularly.   

Importantly, well diversified investors are able to benefit from these successes and reap good investment returns, even in uncertain times.

 

US tariff update

The US tariffs announced with such fanfare on “Liberation Day” (2 April 2025) remain a source of confusion. 

With many of the more recent tariff-related announcements having been delivered in snippets via President Trump’s social media platform (Truth Social), or in soundbites from TV interviews, the details around this are still far from settled.

Share markets reacted very negatively in early April, when the so-called reciprocal tariffs were first announced, but since then, implementation of the tariffs was paused and eventually delayed by 90 days (to 9 July) to allow time for the US to negotiate trade deals with the rest of the world. 

However, with little evidence of progress on concluding many new trade deals, the Trump administration pivoted again in early July and announced they would now be sending all countries a letter outlining what their tariff rate with the US will be, with a revised implementation date of 1 August. 

At least, at the time of writing, that is the current understanding. 

Uncertainty around this remains high because whatever the Trump administration say about tariffs on any given day doesn’t necessarily bear any resemblance to what they eventually do. It’s reasonable to assume that something will happen on or around 1 August. However, given the messaging around this has a habit of changing from week to week, it would be foolish to think we can be confident about exactly what will be implemented, and when.

It is still anticipated that imposition of sizable, widespread US tariffs will have an impact on global trade, inflation and economic growth, but it is just impossible know today whether that impact will be large or small, fleeting or long term. 

Pleasingly, in spite of this uncertainty, share markets have largely accepted that tariffs in some shape or form are coming, and have ‘gotten on with business’, delivering solid returns in the second quarter. 

In many ways this is a vote of confidence that good businesses will be able to successfully find ways to adapt to the new tariff environment, whatever it turns out to be. For US businesses this may mean rethinking supply chains where possible; for international businesses, it may mean cultivating additional markets outside the US. 

One thing’s for sure – businesses and consumers looking to maximise their own self-interest (i.e. greater profits for firms and lower prices for consumers), will not just do nothing. We will continue to watch this evolving policy area with much interest.

 

The Middle East and oil prices

Ongoing conflict in the Middle East is always unsettling, but the market reaction to recent events has been much lower than initially feared. 

Serious conflict of any kind will generally hurt investment markets, at least temporarily, and can also deliver wider economic impacts, such as higher inflation. In this regard, higher energy prices are often a key contributor. This is why, during geopolitical flashpoints like the recent Iran bombing, the potential impact on the oil supply and price often becomes a point of considerable market and media attention.

Following Israel’s attack on Iran on 13 June, the price of Brent crude quickly jumped 10% amidst concerns about potential future disruptions in oil supply. 

At the time, it was widely reported that one potential mode of retaliation by Iran could include “closing” the Strait of Hormuz, a sea passage critical to global oil transit. Such an action would naturally constrain oil supplies, increasing oil prices and eating into profits of almost all businesses.

However, the Strait of Hormuz is a comparatively wide channel of international waters and could not easily be ‘closed’. Additionally, with much of the oil passing through the Strait originating from Iran’s neighbours (Saudi Arabia, Iraq, UAE and Kuwait), disrupting access to these waters would significantly increase the risk of further isolation for Iran.

With concerns about significant Iranian retaliation easing, the oil price quickly retraced back to its pre-conflict range. This suggests the markets do not currently anticipate any significant supply issues or inflationary impact to materialise from the current conflict.

 

The New Zealand economy

The impact of Covid-19 on the New Zealand economy has persisted well beyond the relatively short-lived, but very serious, health risk which peaked in 2020/21. 

When national borders closed and international supply chains became disrupted, New Zealand’s export-led economy faced some immediate headwinds, and these headwinds have taken a long time to recede.

New Zealand’s Gross Domestic Product (GDP) performance in recent years reflects this very clearly. GDP measures the total market value of all goods and services produced within a country during a specific time period, usually a year or a quarter. If a country is expanding its production of goods and services, the change in GDP will be positive, and if total goods and services production is contracting, the change in GDP will be negative.

Since March 2020, there have been 21 calendar quarters (with a quarter being three months long), and in seven of these quarters the change in GDP was negative. This includes two periods when the change in GDP was negative in back-to-back quarters, signifying a technical recession. 

How does that compare to the pre-Covid period? 

Pretty badly as it turns out. Prior to March 2020, you have to go right back to the March quarter of 2013 (a full 28 quarters earlier) to find the last time New Zealand’s quarterly GDP change was negative.

The current New Zealand government has made economic growth one of its primary objectives this term and the six months from September 2024 to March 2025 recorded New Zealand’s best six-month change in GDP performance in over three years. On the back of this result, hopes were increasing that sustainable growth had finally returned. 

Unfortunately, indicators during the April to June quarter appear to have lost a little momentum. Filled jobs and the number of job advertisements have declined which suggests further upward pressure on the unemployment rate as the same number of New Zealanders compete for fewer jobs. The housing market also appears to have slowed again with house price growth moderating and the ‘days to sell’ lengthening amidst lower sales volumes overall.

Although the performance of the primary sector remains a clear bright spot, farmers have so far favoured paying down debt and increasing cash balances, meaning the financial flow-through to the broader economy has been limited.

For now, the Reserve Bank has continued with a pause on interest rates, although markets currently still expect one or two further 0.25% rate cuts later this year. 

 

Is there a ‘best’ time to invest?

Studies of investor behaviour reveal that if share markets have been strong, investors are more likely to think it’s a good time to invest, while if markets have been weak, they are more likely to think about delaying investing or, even worse, exiting the market. Of course, there are also some contrarians out there who take the opposite view. 

With a number of global share markets currently at or near their historical high points, contrarians are more likely to be thinking shares have had a pretty good run overall and ‘maybe I should wait for a pullback before investing’.

It’s human nature to wonder whether investing today will be the ‘perfect’ time, but without ever being able to know tomorrow’s news in advance, anyone choosing to invest on any day has to accept a degree of uncertainty. 

However, because share markets on average go up over time, the best time to invest (statistically speaking) is always as soon as you can. Once invested, the next best decision is to stay invested. Delaying investing or waiting for a hoped-for market pullback before doing so, is often more likely to leave you worse off.

When we analyse the long-term history of major market returns, the data supports this conclusion.

Below is a graph that takes into account the last 99 years of US share market returns (based on the return of the S&P 500 Index). This is a useful dataset, because the US market is a significant driver of global share returns and we have almost 100 years of data to work with. 

This chart reveals the average calendar year return of the US share market in the year immediately after it was:

• Negative (which happened 26 times over that timeframe)
• Positive (72 times)
• Up by more than 20% (37 times)
• Down by more than 20% (6 times).

What’s remarkable is how similar these results are. Whether the US share market has been negative, or up by more than 20% in the previous year, the subsequent calendar year return has averaged between 10.87% and 13.69% p.a., which is very close to its long run average.

With a return profile that looks like this, simply being invested and staying invested is much more important than trying to time your entry point.

 

Achieving your fairy tale ending

If we need to take an amount of investment risk to help grow our financial assets over time, and many of us do, then emotionally coping with uncertainty is an important first step.

While having a functioning crystal ball to turn to may be a nice idea, they only exist in fairy tales. In reality, no-one can consistently and correctly guess what the future holds. Of course, there are always people in the world who will claim possession of special skills in this area, but such claims usually fail under robust analysis and are not supported by decades of market evidence. 

Thankfully, we don’t need to chase rainbows to end up with our own ‘pot of gold’. We can do so by design. Each of us can achieve our own financial independence with the diligent pursuit of actions that, over time, will grow our future wealth.

Yes, investing is complex, sometimes highly emotionally challenging, and involves taking risk that will occasionally test our behavioural urges. But it is absolutely possible [DT4] to invest effectively and successfully by following sound advice and adopting a prudent strategy, suited to your individual needs and circumstances.

To anyone who has reached this part of the report, congratulations are in order, because that is exactly what you are doing.

 

 

For a detailed review of the asset class performances for the quarter, see ‘Key market movements - June 2025’

 

Disclaimer

While every care has been taken in the preparation of this newsletter, Consilium makes no representation or warranty as to the accuracy or completeness of the information contained in it and does not accept any liability for reliance on it. Information contained in this newsletter does not constitute personalised financial advice and does not take into account your individual circumstances or objectives.