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Review of the past quarter’s market performance, key themes driving returns, and our outlook for the months ahead.

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We are pleased to share our latest Strategem Q2 2025 Market Recap & Investment Insights.

The June 2025 quarter saw a strong rebound in global markets, overcoming early volatility driven by US tariff announcements. Investor confidence improved mid-quarter as tariffs were delayed and the US dollar weakened, while easing geopolitical tensions in Ukraine, Israel, and Iran provided a further boost late in the period. Australian shares surged to record highs, rising 9.5% for the quarter, led by growth sectors and major banks. However, with share prices rising more quickly than earnings, concerns persist around valuation sustainability.

International markets also performed well, particularly in the US, where optimism around a “soft landing” — lowering inflation without triggering a recession — lifted sentiment. Hedged global shares returned 9.3%, while unhedged shares delivered 6.0%. Despite the positive performance, elevated valuations, especially in the US, remain a key risk to watch.

Fixed interest and credit markets delivered solid gains. Australian fixed interest returned 2.6% for the quarter, supported by expectations of interest rate cuts. Global high-yield credit performed particularly well, buoyed by attractive yields and sustained investor demand, even amid ongoing global uncertainty.

While markets remain buoyant, signs of economic softening are emerging. Activity across the US, Europe, Japan, and China appears to be losing momentum, particularly in the services and retail sectors. That said, labour markets remain robust, with low unemployment helping to support household demand and reduce the risk of a sharper downturn.

Australian shares have continued to rally despite weaker earnings expectations, and dividend yields have fallen to their lowest level in 20 years. Notably, bond yields have now risen above dividend yields — an uncommon dynamic that suggests investors may be shifting their focus towards the relative stability and income offered by bonds.

Although the recent passage of the Trump Administration’s “Big Beautiful Bill” (BBB) — which includes major tax cuts and increased government spending — has not significantly unsettled bond markets, trade uncertainty remains elevated, with the next tariff negotiation deadline set for 1 August. In this environment, Evidentia remains cautiously positioned, favouring a diversified, quality-focused strategy and continuing to prefer Australian bonds, underpinned by the country's strong fiscal standing. Patience and disciplined risk management continue to be central to our investment approach.