Wall Street has outperformed Australia’s market significantly this year – the S&P 500 is up about 12 per cent since the start of the year, compared with about 3 per cent for the S&P/ASX 200.
Matt Sherwood, Perpetual’s head of investment strategy, multi-asset, said the main reasons for the strong performance was the resilience of the US economy, hype around AI and interest rate cuts from the Federal Reserve. Sherwood said US earnings so far this year had been strong, with companies benefiting from higher revenue while costs were also brought under control.
“Overall, those factors have considerably outweighed the drag that was expected from the US tariffs,” he said.
However, Sherwood said that more recently sentiment had turned somewhat because of a debate about the extent of further US rate cuts and the sky-high valuations placed on US tech giants.
“All of a sudden, people are starting to question whether these behemoth US technology stocks should be traded on the valuations that they are,” he said.
In a blow to investor sentiment, markets have recently lowered the implied odds of a rate cut from the Fed next month, and there is also debate about whether the Reserve Bank will cut rates again in Australia.
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The looming end-of-year results for super funds come after the typical growth fund made 9.9 per cent in the 2023 calendar year and 11.4 per cent in 2024.
A key reason for the solid performance this year has been overseas sharemarkets, which Chant West says make up about 31 per cent of the assets of the typical growth fund option – compared with a weighting of about 25 per cent for Australian shares.
Sherwood said the weaker performance of the local market was due to company valuations that were high by historical standards, and low growth prospects for the economy.