Financial
market returns haven’t been too bad, despite the volatility.
World shares are up 7.3% so far this year, which is a little ahead of the long-term average.
However, under the hood, there’s been a major divergence in the moves.
The S&P 500 in the US is 3-4% higher, but that nondescript return hides an 18.9% slump followed by a 22% rebound.
Other markets have been stronger with UK, Europe and emerging market shares posting gains of 7-13% during the first half.
Currency moves have accentuated this divergence for New Zealand investors.
A weaker US dollar has pushed S&P 500 returns into negative territory, while a stronger euro and British pound have supercharged the gains in those markets.
Local shares have been disappointing, with the NZX 50 index down about 5% so far this year.
The housing market has also been soft, with prices falling in five of the past six months.
Conservative assets have held their own with domestic fixed income up 2%, while gold has had a stellar year amidst rising uncertainty.
The shiny stuff might remain well supported given the geopolitical and fiscal backdrop, but after a 25% year-to-date gain it’s difficult to make a value-based argument.
Put all that together and a typical middle-of-the-road investor has probably seen their portfolio go roughly sideways this year.
With a plethora of risk, volatility and reasons for worry, that might feel like a lot of anxiety for little reward.
Six months is a very short timeframe in the world of investing, so keep that in mind.
Looking ahead to the second half of the year, it’s hard to see any let-up in the action.
There are several tariff-related deadlines coming up.
A key one is July 9, when the temporary tariff truce for most countries is due to expire, potentially pushing tariffs back to those proposed in early April.
Another significant date is August 12, when a 90-day tariff reduction between the US and China is scheduled to end.
If we get past those milestones unscathed, the fiscal situation could be the next pain point for the US economy.
The so-called “big, beautiful Bill” is currently making its way through the US Senate, after narrowly clearing the House by a single vote a few weeks ago.
The sprawling piece of legislation centres on extending the 2017 tax cuts from US President Donald Trump’s first term (which will otherwise expire), and his self-imposed delivery deadline of July 4 is fast approaching.
However watered down it looks by the time it finds its way back to the Oval Office, the US debt and deficit position will remain a focal point for markets.
Earlier this year the US 10-year bond yield hit its highest level since it briefly touched 5% back in 2023 (for the first time in 16 years).
It’s averaged around 4.4% for most of this year, higher than some would like but nothing alarming.
Here in New Zealand, we’re all counting on the long-awaited economic recovery emerging over the balance of this year.
The last GDP report looked good on the surface, but under the hood things are mixed.
Outside of agriculture, many businesses are still doing it tough.
Lower mortgage rates will be helping households, with the one-year rate below 5% now, well down from 7.3% 18 months ago.
However, we’re approaching “as good as it gets” territory now, with interest rate markets suggesting there might be just one final Official Cash Rate cut this year.
We’ve had a big six months and buckle up, there’s plenty more to come.
That doesn’t mean we should be fearful though, nor should we sit on the sidelines and do nothing.
Periods of volatility always throw up opportunities, as anyone who did a spot of bargain hunting in April will testify.
Mark Lister is investment director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision Craigs Investment Partners recommends you contact an investment adviser.
