FY2025 Market Review and FY2026 Outlook

A year of strong returns, shifting leadership, and cautious optimism ahead

The past financial year delivered solid gains across major global markets — but not without some bumps along the way. Falling inflation, strong corporate earnings, and tech-fuelled growth drove returns, while investors also had to navigate periods of volatility, sector rotation, and geopolitical tension.

As we step into FY2026, here’s what drove markets over the past 12 months and what we’re watching in the year ahead.

 12-Month Performance Highlights (to 30 June 2025)

Equities

• 🇦🇺 ASX 200: +13.81% — strong performance from banks and miners, with CBA a standout
• 🌐 MSCI World (AUD): +18.48% — boosted by AI optimism, earnings growth, and global stimulus
• 🇺🇸 S&P 500: +13.63% | Dow Jones: +12.72% — resilient U.S. growth led by tech and large-cap stocks
• 🇩🇪 DAX 40 (Germany): +31.12% — Europe’s strongest performer thanks to a recovery in manufacturing and exports
• 🇨🇳 CSI 300 (China): +13.70% — helped by targeted stimulus and a stabilising property market
• 🇬🇧 FTSE 100 (UK): +7.31% — defensive sectors like energy and consumer staples underpinned returns
• 🇯🇵 Nikkei 225 (Japan): +2.28% — strong start faded as currency and export pressures emerged

Other Key Indicators

• 🏆 Gold: +44.67% — demand rose amid inflation concerns and global instability
• 🛢️ WTI Oil: -12.46% — oversupply concerns and softening demand drove prices lower
• 💼 Australian Government Bonds: +6.67% — supported by falling inflation and interest rate expectations
• 📉 Australian Inflation: 2.12% — now within the RBA’s 2–3% target range, helping drive rate cuts

What Drove FY2025: Inflation Eased, Markets Rotated

One of the big stories in FY2025 was the steady decline in inflation across major economies. In Australia, inflation dropped to 2.12%, prompting the RBA to shift from pausing interest rate hikes to delivering two rate cuts — with more expected ahead.

Another key trend was sector rotation. As inflation cooled and rate hikes slowed, investors shifted out of defensive sectors (like energy and consumer staples) and into growth areas — including tech, infrastructure, and financials.

Regionally, leadership also shifted: European and Chinese markets bounced back, while U.S. tech continued to dominate. In Australia, strength in banks and miners helped lift the ASX.

FY2026 Outlook: Cautious Optimism with Pockets of Risk

The new financial year kicks off with a positive backdrop — but also a few important risks that could shape market direction.

🏦 Interest Rates

Markets are pricing in interest rate cuts from the RBA, U.S. Fed, and European Central Bank between late 2025 and early 2026. Lower rates tend to support both share and bond markets — but the timing, scale, and messaging will matter.

⚠️ Valuation Watch

The ASX 200 is currently trading near 19x forward earnings, well above the long-term average of ~14.75x. That means companies will need to meet or beat expectations to justify valuations — or risk short-term pullbacks.

Geopolitical & Macro Risks

• Donald Trump’s return to the U.S. presidency in November 2024 has already made waves. In April, a series of aggressive trade and tariff proposals rattled markets, prompting a temporary pause on several measures. Those holds are now starting to lift — and with key trade policy changes back on the table, markets are once again facing renewed uncertainty.
• Tensions between the U.S. and China, as well as ongoing conflict in Eastern Europe and the Middle East, remain potential market disruptors.
• Corporate earnings are expected to grow modestly this year — but if expectations aren’t met, particularly in high-valuation sectors, volatility could follow.

 How Investors Can Prepare

Heading into FY2026, sticking with the basics will serve investors well:

• Diversify across asset classes, sectors, and regions
• Focus on quality — companies with strong balance sheets and earnings consistency
• Stay flexible — short-term volatility often creates long-term opportunities

 Final Word

FY2025 showed that even with uncertainty, strong returns are possible — especially when inflation is falling and central banks begin to ease off. FY2026 will bring new challenges and shifts in leadership, but by staying informed, diversified, and disciplined, investors can confidently navigate what’s next.

Key Takeaways for Investors:

• FY2025 delivered strong returns across shares and bonds
• Inflation is easing, and interest rate cuts are likely
• Stay diversified, focus on fundamentals, and prepare for a dynamic year ahead

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