The first half of 2025 has concluded, revealing varied performance across global stock markets. While the US S&P 500 delivered strong returns, Australia’s ASX lagged behind. We break down the key drivers, sector performance, and outlook for investors.
Contents
Key Takeaways:
- Australian stocks saw solid gains but were significantly outperformed by the US market.
- Technology and Financials led performance in both Australia and the US, though sector drivers varied.
- Money began flowing out of US assets into other global markets, particularly Europe.
- Elevated valuations in both the US and Australia present potential challenges for future returns, alongside macroeconomic risks like tariffs and debt.
H1 2025 Global Market Snapshot
The first six months of the year delivered positive, albeit uneven, results for equity investors. Australia’s All Ordinaries Index returned 4.2% for the half-year and 9.5% for the full financial year ending June, excluding dividends. While respectable compared to historical averages, this performance trailed the US.
The S&P 500 in the United States surged, posting a 5.5% return for the half and an impressive 13.6% for the fiscal year. This continued a trend of US market dominance, though cracks began to show later in the period.
Beyond these major markets, standout performers included Germany’s DAX, boosted by significant government spending initiatives in defense and infrastructure. Hong Kong also rebounded, showing signs of economic recovery in China, a revival in IPOs, and renewed interest in Chinese tech stocks driven by advancements in AI.
Meanwhile, bonds continued a challenging period with further losses. In commodities, gold, copper, and Bitcoin saw significant gains over both six and twelve months, partly benefiting from a weaker US dollar, which experienced its worst start to the year since 1973. In contrast, iron ore and oil were laggards, with iron ore hit by subdued Chinese demand and oil initially rising on Middle East tensions before retreating. The Australian dollar strengthened against other currencies as some central banks began cutting interest rates earlier and faster than the Reserve Bank of Australia (RBA).
Global stock market performance comparison between Australia and the US in H1 2025
Performance on the Australian ASX
Breaking down the performance of Australian stocks by sector in the first half, Financials, Communication Services, and Industrials were the strongest performers. Healthcare was the only sector to finish in negative territory, primarily due to a significant 15% drop in the share price of biotech giant CSL. Materials also weighed on the index, with falling iron ore and oil prices impacting heavyweight miners like BHP, RIO, and energy producer Woodside.
Australian ASX stock market sector returns for the first half of 2025
Looking specifically at the June quarter, the Technology sector surprisingly led the ASX. This performance suggests a potential shift in institutional investor focus, perhaps moving away from expensive banks and stagnant mining stocks towards growth opportunities in other sectors like tech.
Among large-cap stocks, Commonwealth Bank (CBA) was a major winner, climbing 21% year-to-date. The reasons for CBA’s persistent rise have puzzled many, but it appears to have benefited from money moving out of US markets, passive investment flows, and few sellers due to potential large tax bills for long-term holders. At 31 times forward earnings (PE), CBA trades at a valuation typically seen for high-growth tech companies, despite its more modest earnings growth outlook. Telstra was another notable large-cap performer, with its first-half earnings exceeding expectations.
Examining market factors, growth and momentum stocks continued their strong run, up 9% and 7% respectively in the first half. Interestingly, low volatility stocks were also significant outperformers, rising 9%. This dichotomous performance suggests investors are simultaneously seeking growth opportunities, particularly in tech and industrials, while also looking for defensive exposure offered by stocks like CBA and Telstra.
The US Market’s Comeback Story
The S&P 500 closed the first half at a new all-time high – its fifth of the year. This marked a significant turnaround from earlier in the year; on April 8, the index was down 15% year-to-date, its fourth-worst start in history, before staging a remarkable recovery to finish the half up 5.5%.
Chart showing the rebound and record high of the US S&P 500 index in H1 2025
While the ‘Magnificent Seven’ tech stocks have been major drivers of US market performance in recent years, their impact was less uniform in the first half of 2025. The group was up 9% combined in the June half, but performance varied significantly, with Apple, Alphabet, and Tesla seeing declines of 18%, 7%, and 21%, respectively. The sheer scale of these giants remains striking, with the Magnificent Seven boasting a combined market capitalization of A$27.3 trillion, compared to Australia’s entire All Ordinaries Index at A$3.2 trillion.
Analyzing US sector performance, Technology roared back in the second quarter, leading the market rebound. Other strong sectors included Industrials, Financials, and Utilities. Underperformers in the half included Consumer Discretionary, Healthcare, and Energy.
Performance breakdown of US S&P 500 market sectors during H1 2025
Similar to Australia, Growth stocks significantly outperformed Value stocks in the US. The second quarter saw the widest performance gap between the S&P 500 Growth Index and the Value Index since the indices were created in the mid-1990s, with Growth rallying 18.8% in Q2 versus a gain of only 2.5% for Value.
Graph comparing the significant outperformance of S&P 500 Growth stocks over Value stocks in Q2 2025
Top performing individual stocks on the S&P 500 in the first half included Palantir, Newmont, Netflix, and Micron Technology.
List and performance of the best performing individual stocks in the US S&P 500 index in H1 2025
Global Asset Flows Shift Away from the US
After a decade of US stock market dominance, 2025 has shown the first significant signs of money flowing out of America into other global markets. While the S&P 500 gained 5.5% in the first half, the World ex-US index rose a remarkable 18%, with Europe leading the charge.
Four European markets topped the performance charts in US dollar terms: Poland (+55%), Greece (+53%), Austria (+43%), and Spain (+42%). Factors contributing to this shift include investor confidence in US assets and the US dollar being eroded by potential trade tariffs and increased US debt concerns stemming from new spending bills. Europe’s commitment to significantly increase defense and infrastructure spending also boosted its appeal.
Chart illustrating international investment flows showing money leaving US markets for other regions in 2025
This potential pivot in global asset allocation is a trend worth watching closely. For insights into managing debt concerns, see our analysis on lessons from 100 years of growing US debt.
Outlook: Navigating the Next 6-12 Months
Looking ahead, several macroeconomic risks could impact market performance. The expiration of deferred US tariffs looms, geopolitical tensions remain a factor (particularly potential retaliation to US strikes), and concerns about America’s growing national debt are exacerbated by the recently passed “One Big Beautiful Bill Act,” expected to add significantly to the deficit.
Furthermore, valuations in most major markets, including the US and Australia, appear elevated compared to historical averages. The US S&P 500 trades at a forward P/E ratio of 22x, well above its historical average of 17x. Australia is also expensive at a forward P/E of 19x compared to its 15x historical average, with more modest earnings growth than the US. Such high valuations generally suggest lower potential for future returns.
Historical and current forward Price-to-Earnings ratio for the US S&P 500 index
Historical and current forward Price-to-Earnings ratio for the Australian ASX index
On the upside, potential interest rate cuts by central banks in the second half of the year could provide support for markets. While valuations are high, earnings growth, particularly in the US, remains relatively robust.
Although some pockets of the market show signs of speculative froth (like cryptocurrency and parts of AI and private credit), these don’t yet appear broad enough to signal an imminent large market pullback. There’s even an argument that the current bull market might still be in its earlier stages.
Diagram showing potential phases of a stock market bull run cycle
One tentative prediction is that the US market’s share of the MSCI World Index may have peaked in late 2024, and the trend of money shifting out of American markets towards the rest of the world could continue. This could potentially broaden the rally to currently cheaper markets like Japan and China.
Graphic representing global equity markets and international investment opportunities
For Australia, the economic picture remains subdued, as does the earnings outlook for many companies. A key dynamic to watch is the potential for investors to rotate out of banks and into mining stocks. Expected interest rate cuts could negatively impact bank earnings, while miners could benefit from shifts in commodity prices or global demand. Given the high valuations of banks, particularly CBA, such a sector rotation could be significant.
Further Reading and Expert Commentary
Beyond the core market performance, other key financial topics influenced the landscape in the first half. The expected interest rate cut by the RBA (highly anticipated for the upcoming week) is a major factor for the Australian economy and markets. For deeper dives into related areas, consider these insights:
- Superannuation Tax Changes: Understand the implications of the proposed tax on super balances over $3 million, including analysis of who is affected and their capacity to manage the tax, even on unrealised capital gains. Read more here: Less than 1pc of wealthy families will struggle to pay super tax.
- Alternative Tax Models: Explore critiques of the proposed Division 296 tax and a case for an alternative, progressive tax model that aligns with income and supports retirement planning. Learn more here: Here’s what should replace the $3 million super tax.
- SMSF Performance: Discover the drivers behind Self-Managed Super Funds (SMSFs) matching or outperforming larger funds, despite conservative strategies, and potential policy implications. Find the analysis here: Are SMSFs getting too much of a free ride.
- Australia’s Housing Market: Gain perspective from a major developer on supply constraints, government initiatives, and potential green shoots in Australia’s challenging property market. Read the interview here: A developer’s take on Australia’s housing issues.
- Investing in Familiarity: Consider if investors might be overpaying for well-known US mega-cap tech stocks and the potential benefits of switching when it feels most difficult. Explore the argument here: Investors might be paying too much for familiarity.
- Contrarian Investment Strategies: Learn about the historical performance of systematically buying market losers and why it could be a winning strategy for enterprising investors. Read the analysis here: A winning investment strategy sitting right under your nose.
- Evaluating Quality ETFs: Understand weaknesses in popular indices like the MSCI World ex Australia Quality Index and explore alternative approaches to gaining quality stock exposure. Find the insights here: When quality isn’t enough: active solutions for a changing world.
Additionally, recent market updates indicate the ASX finished the week achieving a new record high above 8,600, following strong US jobs data which reaffirmed the strength of the US economy. This momentum, coupled with expectations of an RBA rate cut, supported the market’s upward trend despite some late-week caution related to tariff uncertainty affecting European markets. Sector performance on Friday was mixed, with materials seeing declines after earlier gains, while financials showed varied results among the big banks. The performance of individual stocks like G8 Education highlighted specific corporate governance and external risk factors impacting share prices.
For a comprehensive view of these and other market developments, explore the related articles linked above.
