Investing.com–Australian share markets are set for a cautious start to 2025, with rising bond yields and economic uncertainty likely to dampen growth in the early months, Macquarie analysts said in a research note.
They predict that earnings rather than valuation multiples will have to drive returns after a stellar 2024, in which earnings were heavily supported by the price-to-earnings (PE) ratio.
It rose 11.4% at the end of 2024, marking the second year in a row of double-digit returns. However, a 3.2% decline in December underlined the market’s fragility as a spike in US bond yields rattled investors.
“As we enter 2025, our FOMO gauge has fallen to 0.91, indicating that sentiment has cooled somewhat, but investors are still optimistic about the outlook,” Macquarie analysts wrote.
Macquarie expects weaker housing market growth and economic pressure to dampen surprises at the start of the year, and advises risk-averse investors to wait for a more favorable entry point in March.
Technology emerged as the standout sector last year with a total shareholder return (TSR) of 48.5%, driven almost entirely by higher profits. In contrast, financial institutions largely depended on growing multiples for their profits.
The commodities sector suffered a 14.9% slump due to falling commodity prices and weaker demand from China, despite periodic stimulus-fueled rallies. Gold was a bright spot, benefiting from a 27% rise in global prices and strong demand from central banks.
Looking ahead, sectors such as basics and utilities, which showed resilience in December, may continue to play defensively, analysts noted. Meanwhile, real estate could face headwinds as expectations for interest rate cuts diminish.
