Executive Summary

• Financial markets were volatile in April, driven by US President Trump’s ‘Liberation Day’ announcement on global trade tariffs. After steep falls in early April, the Australian S&P/ASX 300 Index finished up +3.60% and the US S&P 500 was down -0.68%.
• As the month progressed, market volatility eased from extreme levels. Typically, highly elevated levels of volatility have presented attractive buying opportunities for investors with a mid-to-long term investment horizon.
• Investors are likely to remain wary whilst trade uncertainty lingers.

Equity Market Overview

Equity markets took investors on a rollercoaster ride in April, with the S&P/ASX 300 Index up +3.60% whilst the US S&P 500 returned -0.68%.  Markets were down sharply at the start of the month before recovering most of the losses by month end.  At its lowest, the US S&P 500 benchmark was down -11.19% with the S&P/ASX 300 down -6.07%.

The primary cause of the volatility appeared to be President Trump’s ‘Liberation Day’ statement on 2 April.  The US President spooked global investors by announcing higher-than-expected trade tariffs against its trading partners.  Investors reacted by selling equities on fears a tariff war could lead to higher inflation and lower global growth, and the potential erosion of the historic safe haven status enjoyed by the US dollar (USD).

In response to the imposition of US tariffs, reciprocal tariffs were announced by China that were subsequently matched and raised again by the US.  By month-end, tariffs were at levels that effectively represent a trade embargo between the two economic powerhouses.  Given the US dependence on China for its manufacturing capabilities, US consumers face the risk of empty shelves for impacted products if a negotiated outcome is not quickly secured.

A sharp rise in the US 10-year bond yield was the circuit-breaker, prompting the US President to declare a 90-day ‘cooling off’ period – creating a window for impacted countries to negotiate with the US for more favourable terms. Equity markets responded positively to the pause, with markets recording large gains on the day of the announcement.  Volatility eased from extreme levels and markets gradually recovered their earlier losses over the subsequent weeks.

The tech-heavy NASDAQ benchmark was up +0.88% for the month.  European markets ended slightly lower with the STOXX Europe 600 benchmark down -1.21%.

Fixed Income Markets

Like equities, bond yields were also volatile in April. The US 10-year bond yield initially fell sharply to under 4% in response to ‘Liberation Day’ tariffs before quickly spiking to nearly 4.50% due to concerns that the US safe-haven status was under threat with sustained capital outflows a risk.  Higher yields and signs of market instability resulted in the 90-day ‘cooling off’ period to allow for trade negotiations.

Expectations for interest rate cuts increased, with current futures pricing anticipating the RBA to cut rates by 4-to-5 times by the end of the year to support growth.¹ Expectations for rate cuts in the US were tempered by the risk of higher prices due to tariffs.  The futures market currently expects 3-to-4 cuts in US official rates.¹ By the end of April, the Australian 10-year bond yield was at 4.16%, down -0.22%.  The US 10-year bond yield closed at 4.16%, down -0.04%.

Commodity Markets

Except for gold, commodity markets were generally lower in April reflecting demand concerns. Gold soared as investors sought out a safe haven to park their money.  The yellow metal broke through the US$3,500 level, before easing as volatility unwound and the USD stabilised. Oil prices were down sharply given market fears of slowing global economic activity. Copper plunged at the start of the month, before reducing losses as the month progressed. Copper is also heavily influenced by global growth expectations. Iron ore was lower on concerns that tariffs imposed on China would hamper domestic demand as well as more general concerns for global steel demand. BHP ended the month broadly flat with Rio Tinto slightly higher.

Australian Equity Market Review

The Australian market had a more muted response to the tariff saga, partly because we received the lowest level of imposed US tariffs, but also as Australia was seen as a safe haven relative to other equity markets.  Sectors such as Consumer Staples (supermarkets) and Communication Services were among the better performing sectors in April, reflecting the defensive characteristics of these sectors under more volatile market conditions. Banks were strong performers, benefitting from inflows into the Australian market. Commonwealth Bank recovered losses incurred in March to again hit record highs. Information Technology stocks rebounded sharply as the month progressed.

Energy seemed to be impacted by a falling oil price and fears of a slowing global economy.  Lingering fears of yet-to-be announced pharmaceuticals tariffs seemed to weigh on healthcare stocks.

Best and Worst Performing Stocks

Large-caps slightly outperformed small-caps in April.  Lynas Rare Earths benefitted from China’s decision to ban the export of key rare earths as a retaliatory action against US tariffs.  Rare earths are used in advanced technologies including electric vehicles, fighter jets and robots.  Challenger tightened profit guidance in an upbeat quarterly update. Pro Medicus rebounded after steep losses in February and March.

Pilbara Minerals reported lower quarter-on-quarter production and revenues at its quarterly update.  As well as pressure on the lithium price, Mineral Resources was impacted by a lower iron ore price, but did recover some of its earlier losses by month end.

Investment Style Performance

The performance of different investment styles can provide useful insights into market behaviour. From a US investment style perspective, momentum-based stocks rebounded strongly in April.  Large-caps also tended to outperform small-caps, reflecting increased risk for smaller companies in a slowing economy. Quality-based factors also outperformed small-caps, reflecting investors’ preference for companies with a proven track record across the economic cycle.  Value investing was a more difficult path, with relatively expensive, high growth names favoured over cheaper companies. This pattern of returns was also observed in Australia with momentum-based stocks outperforming small-caps at the expense of value.

Market Matters – what caught the eye?

Market volatility has spiked to levels seen only in extreme market events like the 2008-09 Global Financial Crisis and 2019 COVID epidemic. At its peak, the CBOE VIX metric (a popular measure of the stock market’s expectation of volatility based on S&P 500 index options) hit 52%, a level of volatility within the top 1% of observed values over the past 35 years.

History indicates that investment returns 12 months after similar levels of volatility are generally positive.

Key Risks to Watch

• Ongoing uncertainty around trade tariffs, particularly as the 90-day cooling off period ends.
• Progress in trade discussions between US and China to enable trade to start flowing between the two countries.
• Weakening macro-economic data reflecting lower business and consumer confidence due to volatile market conditions.
• Signs of deteriorating corporate profits due to direct and indirect impacts of trade tariffs and falling consumer confidence.
• Signs of financial stress in the financial system due to the significant disturbance to long-accepted investment norms.

Market Outlook

The Australian market continues to be dominated by geopolitical themes and trade policy concerns. Although recent market weakness has seen valuations improve, the impact of tariffs on corporate earnings has not yet been captured in valuations.  Compared to historic valuation levels (using forward consensus earnings estimates), the Australian market appears fully valued at current prices, particularly for large-cap stocks.

To discover more call 1300 683 106 or email us on investordesk@nab.com.au

Notes:

1. Interest rate futures prices as reported by Bloomberg at 30^th April 2025.

The information contained in this article is gathered from multiple sources believed to be reliable as at May 2025 and is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, property, financial and taxation advice before acting on any information in this article.

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