It isn’t pretty in financial markets at the moment. Nothing rattles investors more than uncertainty, and we live in very uncertain times. The S&P500 is down nearly ten per cent in three weeks while the tech-heavy Nasdaq is off 13 per cent. As of yesterday’s close, the S&P/ASX200 is down nearly eight per cent from its peak. The most recent fall is on the back of fears of a recession in the United States. A little context is needed. Global equity markets have been on a tear since mid to late 2023, none more so than Wall Street, powered by the Magnificent 7 tech stocks. But it had to end at some point. If you put a trend line through the last ten years, the US market is wildly overpriced. Even after recent falls, it is still ten per cent overvalued. The ASX isn’t quite in the same league. A trend line over the last decade suggests it's about five per cent too expensive. Markets fall, although over time they trend higher. That’s because economies expand and grow and become more valuable. At times markets overshoot the true value of stocks, and at other times they undershoot. Over the past century on Wall Street, the classic undershoot was the global financial crisis, and possibly, though it’s too early to tell, the overshoot has been the Magnificent 7 boom of recent years. Bottom line: don’t panic. Markets are acting rationally and maybe this is the correction we needed to have.
A hung parliament has its benefits
Australia is heading towards a hung parliament following the federal election, likely in the first half of May. The latest polls suggest Anthony Albanese will again be Prime Minister, with the support of independents. Only once since the modern two-party system took hold in 1940 has there been a minority government, and that was under Julia Gillard. A hung parliament means neither the ALP nor the Liberal-National coalition wins 76 seats in the 151 seat lower house, in their own right. In the Gillard parliament, the ALP depended on the support of three independents and one Greens member to rule. A hung parliament triggers far greater negotiation not just in the Upper House, but the Lower House as well. While many pundits warn it would be a disaster, it could make for better government (and potentially a less influential Senate). The Gillard government was well known for negotiation and passing legislation, and that includes legislation like the National Disability Insurance Scheme, the Mineral Resources Rent Tax and schools funding legislation following the Gonski review. It was a government that had to negotiate and discuss options. That wouldn't be a bad thing for either major party in 2025.
Why we should welcome US tariffs on steel and aluminium
This morning the White House confirmed that $1 billion in annual Australian steel and aluminium exports to the United States will be hit with 25 per cent tariffs from today. When asked why Australia, which for decades has had a trade deficit with the US (meaning America has a surplus), was included, 27-year old spokesperson Karoline Leavitt said, somewhat ignorantly: “American-first steel. And if they want to be exempted, they should consider moving steel manufacturing here.” It shouldn’t be a surprise. If the White House attacks its best friends – Canada and Mexico – why should we be different? It isn’t a bad thing because it confirms that Australia isn’t special in the eyes of the current Administration, no matter what local politicians say. It’s the new world we live in, at least for the next four years. In terms of income, Australia is the sixth largest producer of aluminium in the world, and we sell to plenty of other countries. Japan and South Korea are major importers of Aussie aluminium and we also sell large quantities to Taiwan and Thailand. If you include alumina, which is the oxide form of aluminium, we sell decent amounts to the Middle East, and parts of Africa. In terms of steel, Australia is too distant from most places to make exporting a viable alternative. One company that will do well from the tariffs is ASX-listed BlueScope, which has factories in Ohio. At least for shareholders, the introduction of steel tariffs is, ironically, a good thing.
Leadership: the importance of hard conversations
This week, Fear & Greed's Adam Lang looks at the importance of speaking up.
In a recent podcast, Theresa Roessel, CFO of Canada Diagnostic Centres, spoke about living in different countries and working in a variety of environments. She said: “Having those experiences under my belt made me braver and more willing to put myself into uncomfortable situations. Gaining such broad experience gave me the confidence to speak up and have the hard conversations that I see other people tiptoeing around. There is a great phrase that I heard a long time ago that says, ‘A leader is host to the conversations that matter most.’ I really believe in that. I believe that’s really important but doing that takes courage and the ability to bring up issues that isn’t going to put people on defence.”
In high-performing teams, everyone should feel encouraged to express their views honestly, candidly, and respectfully. It is an expression of trust that team members feel they can acknowledge wins, take risks, ask for help, express their ideas and concerns, speak up with questions, and admit mistakes. It is how best practices can keep evolving and teams can keep winning.
BEST OF THE WEEK
IF YOU MISSED THESE ONES, CATCH UP NOW
US President Donald Trump has been in the Oval Office now for fifty days. Chris Uhlmann, former political editor for the ABC and Nine, shared his unique view of global politics from Ukraine to China, and where Australia fits into the picture.
"With all the turmoil in markets, how are smaller companies performing compared to bigger companies?"
AND ONE LAST THING...
What a week for Elon Musk. Tesla shares tumbled, his social media platform X was hit by a big cyber attack, and his efforts to cut US government spending continued unabated. And alongside it all, a big win and an ever bigger loss for his company SpaceX.
First, the good news. The SpaceX landing pad successfully caught another booster rocket, snatching it out of the air. That's three now. Check out this video of all three side-by-side. It is truly remarkable technology.
Less remarkable was what happened to the Starship that the booster was launching into space. It experienced what SpaceX described as a 'rapid unscheduled disassembly'... which means it blew up mid-flight. The video of the pieces burning up over the Caribbean is spectacular.
