2025 Mid-Year Market Outlook: Key Investment Insights from Andrew Baxter

The first half of 2025 has been anything but predictable. Market volatility, shifting government policies, and economic uncertainty have left investors questioning whether recent gains are sustainable. Even those who began the year with confidence are now reassessing their investment strategies. In this environment, understanding the forces behind market movements is essential for protecting and growing your portfolio.

Australian Share Market: Solid Gains with Policy Risks Ahead

Australian equities have performed relatively well in 2025, with the ASX 200 posting gains of around 2.7%—outpacing U.S. markets. Financial stocks have been the main driver of this growth, led by industry heavyweights like Commonwealth Bank (CBA) and insurers such as QBE. However, current valuations are starting to look stretched.

For example, CBA shares are trading above $175, making it one of the priciest banks globally. Yet, its growth potential appears limited. Australia’s tightly regulated banking sector is dominated by just four major players, and recent reforms following the Royal Commission have curtailed opportunities for vertical integration.

Compounding these challenges are proposed tax reforms targeting high-income earners and founders. Plans to introduce taxes on unrealised capital gains have raised concerns, drawing comparisons to the UK's experience in the 1970s. If implemented, these changes could prompt a shift in capital offshore and reshape how investors evaluate risk and opportunity.

Resource Sector Under Pressure

The resources sector, another cornerstone of the Australian economy, has lagged behind financials. Major players like BHP and Fortescue have underperformed due to softening demand from China, which is actively diversifying its supply chain with new projects, particularly in West Africa.

This evolving dynamic may reduce Australia's dominance as a primary exporter of iron ore. Trade tensions and a more fragmented global supply chain have made the resource landscape increasingly complex, leaving investors with fewer clear growth drivers in the sector.

U.S. Markets: Resilience Amid Uncertainty

The U.S. S&P 500 index is up around 0.7% so far this year and is hovering near record highs. But the journey has been far from smooth, influenced by election dynamics, inflation concerns, and international trade negotiations.

Corporate earnings have remained relatively stable, yet the outlook remains clouded by uncertainty. Businesses continue to grapple with tariffs and changing global trade policies. Nevertheless, tech giants such as Nvidia and Netflix have continued to lead the market by staying nimble and innovative.

Even leading companies like Google are under pressure to integrate artificial intelligence into their core services without compromising user trust. Tech remains a high-risk, high-reward space, making it a critical sector for both growth opportunities and volatility.

Smarter Strategies to Protect Your Portfolio

Given the current backdrop, "set and forget" investing is no longer sufficient. Balancing growth with downside protection is more important than ever.

One practical strategy is using options to hedge large positions, such as holdings in CBA. With market volatility relatively low, protective options have become more affordable. For instance, a standard three-month put option on a major Australian bank now costs around 3% of the investment value. These costs can often be offset by dividend income and call option premiums, providing a balanced risk management solution.

Global Risks Still Loom Large

On the international front, geopolitical risk remains a constant concern. Uncertainty around U.S.-China-Europe trade relations, and ongoing tensions in Eastern Europe, the Middle East, and Asia, could quickly derail market momentum.

As recent years have shown, global events can trigger significant and rapid market responses—making it crucial to monitor these risks closely.

Final Thoughts: Navigating the Road Ahead

The 2025 mid-year point is an ideal time to reassess your portfolio. While markets may continue to trend upward, they are also facing elevated valuations, uncertain policy shifts, and evolving global risks.

A disciplined, diversified investment strategy—focused on both opportunity and protection—will give you the best chance of long-term success. Whether you’re an experienced investor or just getting started, staying informed and using the right risk management tools can help you build and preserve wealth in a shifting economic landscape.

If you're unsure how to adapt your approach, consider consulting a financial adviser to help tailor a strategy that fits your goals.