Solid returns on track despite tech jitters and interest rate doubts

Wall Street has significantly outperformed the Australian market this year; The S&P 500 is up about 12 per cent since the start of the year, compared to around 3 per cent for the S&P/ASX 200.

Matt Sherwood, Perpetual’s head of multi-asset investment strategy, said the main reasons for the strong performance were the resilience of the US economy, excitement around artificial intelligence and the Federal Reserve’s rate cuts. Sherwood said that earnings in the United States so far this year have been strong, and that companies are benefiting from high revenues while keeping costs under control.

“Overall, these factors significantly outweighed the expected drag from U.S. tariffs,” he said.

But Sherwood said sentiment has shifted somewhat recently due to the debate about the scope of U.S. rate cuts and high valuations on U.S. tech giants.

“Suddenly people are starting to question whether these giant U.S. tech stocks should be trading at these valuations,” he said.

In a blow to investor sentiment, markets have recently downgraded the chances of the Fed cutting rates next month, and there is also debate about whether the Reserve Bank will cut rates again in Australia.

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The upcoming year-end results for super funds come after the typical growth fund reported growth of 9.9 per cent in calendar year 2023 and 11.4 per cent in 2024.

The solid performance this year has been driven primarily by overseas equity markets, which Chant West said make up about 31 percent of the typical growth fund option’s assets; Australian stocks account for approximately 25 percent of this rate.

Sherwood said the local market’s weak performance was due to company valuations that were high by historical standards and low growth expectations for the economy.