Market Update August 2025: Rally Meets Reality
Markets have bounced back sharply—but not everything beneath the surface has kept pace.
Markets have delivered strong returns since the April sell-off, but with valuations now stretched, bond volatility elevated, and global uncertainty lingering, investors are entering a more complex phase—one where discipline and selectivity matter more than ever.
In this August 2025 Market Update, MGD Wealth’s Stephen Furness is joined by Matt Wacher CAIA, Chief Investment Officer (Asia Pacific) at Morningstar Investment Management, to reflect on the global backdrop, interest rate expectations, and where the investment opportunity set is shifting as reality begins to test recent momentum.
Key Takeaways
Markets have rallied sharply since April: But many assets now look fully valued, particularly in large-cap equities.
Inflation is easing, but central banks remain cautious: Rate cuts are expected in Australia and the US, but not yet guaranteed.
Bond volatility and policy risk persist: Fixed income markets remain unsettled, with sovereign debt showing both risk and value.
Valuation discipline is front of mind: Morningstar has reduced growth exposure and is selectively repositioning across sectors.
Global uncertainty continues to weigh on sentiment: Tariffs and geopolitics are limiting visibility and suppressing confidence.
Inflation and Interest Rates: Cooling, but Not Done
Inflation has pulled back from its 2022–2023 peaks. In Australia, core inflation is now largely within the RBA’s target band, while the US remains stickier due to lingering tariff pressures. Both the RBA and the Federal Reserve are expected to begin easing later in the year—though, as Wacher points out, central banks remain cautious and are “still not quite comfortable” that the job is fully done.
Markets are currently pricing in multiple rate cuts, but recent data surprises and geopolitical noise may influence the pace.
A Narrow Rally Raises New Questions
The strong market rebound since April has delivered impressive gains—particularly in US equities, global benchmarks, and Australian shares. But the recovery has been concentrated in large-cap names, with the S&P 500’s performance driven by a narrow set of stocks.
Morningstar took advantage of the April dip to add growth exposure but is now trimming selectively. Valuation discipline is central: earnings have been reasonable, but many assets appear fully priced. The focus now is on finding value away from the headline names—including healthcare and select consumer stocks.
“It’s not that there aren’t opportunities—it’s just that fewer assets are rewarding you for the risk.”
Bond Markets Remain Unsettled
While equity volatility has subsided, bond market volatility remains high—particularly in long-duration sovereign debt. Morningstar sees relative value in Australian and US government bonds but is cautious on credit, where spreads have tightened. “Real yields are looking better,” says Wacher, “but we’re being careful around where we’re taking risk.”
Emerging market currencies are also showing signs of value—not necessarily for yield, but as undervalued opportunities identified by skilled managers. This is a small but active theme in select portfolios.
Repositioning With Discipline
For long-term investors, the message is clear: stay invested, but be selective. Timing the market is notoriously difficult, and while the April rebound created opportunity, valuations have since moved quickly. Now is a time for steady hands, thoughtful rebalancing, and a focus on risk-adjusted reward.
As Wacher puts it, “The magnificent names are still great companies—but even the best high jumpers can’t clear the bar forever.”
For any questions or to discuss your portfolio, reach out to your MGD Wealth advisory team.
Important Note: Any advice included in this video and article is general and has been prepared without taking into account your objectives, financial situation or needs. As such, you should consider its appropriateness having regard to these factors before acting on it. Before you make any decision about whether to acquire a certain financial product, you should obtain and read the relevant product disclosure statement.
