Investing.com– Australian equity markets are poised 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, not valuation multiples, will need to drive returns after the stellar 2024, where gains were strongly supported by an expansion in price-to-earnings (PE) ratios.
Ending 2024, it rose 11.4%, marking the second year in a row of double-digit returns. However, the 3.2% decline in December highlighted market fragility as a jump in US bond yields rattled investors.
“As we enter 2025, our FOMO gauge has fallen to 0.91, indicating that sentiment has cooled slightly, but investors are still bullish on the outlook,” Macquarie analysts wrote.
Macquarie expects weaker property growth and economic pressures to weigh on surprises early in the year, advising risk-averse investors to wait until March for a more appropriate entry point.
Technology emerged as the standout sector last year with a total shareholder return (TSR) of 48.5%, driven almost entirely by higher earnings. In contrast, financials have relied heavily on increasing multiples for their gains.
Resources suffered a 14.9% decline due to falling commodity prices and weaker demand from China, despite occasional stimulus-driven recoveries. Gold was the bright spot, benefiting from a 27% rise in global prices and strong central bank demand.
Looking ahead, sectors such as staples and utilities, which showed resilience in December, could continue to offer defensive plays, analysts noted. Meanwhile, real estate could face problems as expectations of rate cuts diminish.
