Quarterly Market Comment

For the quarter ended 31 July 2025

• Global equity markets reached new record highs in July, shrugging off numerous political and geopolitical events during the quarter.
• The MSCI World Index rose +11.9% in US dollars; and was +12.6% higher in New Zealand dollar terms over the quarter.
• US and Japanese equity markets led global gains, rising +14.2% and +14.1%, respectively.
• Share markets in Australia were up +8.2% while the New Zealand market also performed strongly, up +7.7%.
• Fixed income returns were positive: New Zealand investment-grade corporate bonds rose +1.1% for the quarter, delivering a 12-month return of +6.0%.

Global financial markets brush off volatility for a strong quarter

Global financial markets demonstrated remarkable resilience over the past three months, overcoming a barrage of political and geopolitical noise to post strong gains by the end of July. Despite escalating trade tensions, a brief conflict in the Middle East, and mixed economic signals, major equity indices climbed to new highs.

Investors who maintained their positions through 2025’s early volatility were rewarded with a strong rebound. The recent quarter serves as a reminder that reacting to dramatic headlines can often do more harm than good. Volatility is a normal part of investing, and so far this year, markets have shown strength in the face of uncertainty.

Global equity market performance (index = 100 on 1 Jan 2025)

Source: LSEG Workplace, Forsyth Barr analysis

Trump, trade and taxes

Global equity markets rallied impressively over the May–July period, extending the rebound that began in mid-April after the US administration announced a 90-day pause on its more punitive tariff measures. Gains were broad based across regions, but international stocks have been the standout performers in 2025 so far, with European and UK markets among the strongest year-to-date.

Maintaining globally diversified equity exposure has paid off this year, following several years where US stocks outperformed.

In June, investor focus shifted from tariffs to tax reform. The US Republican Party advanced a landmark proposal: the One Big Beautiful Bill Act (OBBBA)—a US$3 trillion+ package aimed at stimulating consumer spending and bolstering support ahead of the 2026 midterm elections.

Key proposals include:
• Making lower personal tax rates permanent (currently set to expire at the end of 2025)
• Eliminating tax on overtime and service-industry tips
• Incentives to encourage business investment

While the OBBBA could deliver a short-term boost to US GDP, analysts caution that rising debt and interest costs could constrain growth over time.

At the end of July, the US announced new baseline tariffs for nearly all countries — excluding China and Mexico, who are still negotiating trade deals. These new rules set a 15% import tariff for countries that run a trade surplus with the US, and a 10% tariff for those with a trade deficit. As New Zealand currently runs a small trade surplus (exporting more to the US than it imports from the US), it now faces a 15% tariff on its exports to the US.

US S&P 500 stock index and US political events

Source: LSEG Workplace, Forsyth Barr analysis

Companies getting on with it

Amid the backdrop of political headlines, the latest international reporting season demonstrated generally solid corporate earnings. Positive results helped ease some concerns around the broader economic implications of recent policy developments. Continued demand for artificial intelligence (AI), data infrastructure, and semiconductors supported technology stocks, with large-cap names contributing meaningfully to market performance in recent months.

While there are early signs that tariffs are starting to impact some companies, many have outlined strategies to manage the associated cost pressures. Looking ahead, a stable earnings base and the possibility of further interest rate reductions from the US Federal Reserve remain supportive factors for US equities. At the same time, valuations are relatively elevated in parts of the market, which does raise a risk that some sectors might be more sensitive to shifts in sentiment or unforeseen developments.

Australian markets also positive

Australasian equities staged a strong recovery over the past three months. After a sluggish start to 2025, the S&P/ASX 200 rose +8.2% over the quarter. As trade tensions eased and the Reserve Bank of Australia signalled faster rate cuts, the Australian market surged, reaching a new record high in early July.

New Zealand equities also gained ground after a lacklustre start to the year. The S&P/NZX 50 Index rose +7.7% over the quarter despite a challenging domestic macroeconomic environment. The New Zealand market’s relatively defensive profile—dominated by stable, dividend-paying companies—is proving attractive as interest rates decline. With the local economy showing early signs of recovery and further interest rate cuts expected, this should help provide a more constructive backdrop ahead.

Long-term focus versus short-term volatility

The first half of 2025 has certainly tested investors’ resolve—from trade war shocks to volatile economic data and geopolitical flare-ups. Periods like these can be unsettling, but it is important to maintain perspective. History shows that sticking to sound investment principles is the best course, especially when markets are volatile. Diversification is important: a mix of asset classes, geographies, and sectors helps smooth the ride and capture opportunities wherever they arise. The coming months will no doubt bring new headlines and surprises.

If you would like to review your investments or discuss the market outlook in more detail, please reach out to your Forsyth Barr Investment Adviser. We are here to help you navigate the journey and keep your financial plans on track.

Matt Henry
Head of Wealth Management Research

Zoe Wallis
Investment Strategist 

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