July 2025 Market Insights

Welcome to the July edition of the Market Insights column brought to you by the Kenanga Digital Investing (KDI) team. In this edition, Our Head of Portfolio Management, Wu Kin Hoe, will discuss the latest financial news and share his insights on how to make the most of today’s market.

Market Recap

Market

June 2025 witnessed a surge in global equity markets, particularly in the United States, where major indices reached all-time highs. The S&P 500 and Nasdaq Composite each recorded gains exceeding 5% during the month. International markets also participated in the rally, with the MSCI ACWI Index climbing a notable 4.4% in June. This bullish momentum underscored a prevailing risk-on sentiment among investors, even as various macroeconomic and geopolitical uncertainties continued to unfold.

The 10-year US Treasury yield ended June at 4.23%, a decrease from 4.4% a month earlier. The lower yield is indicative of softer inflation expectations following muted CPI prints. As of end-June 2025, CME FedWatch data indicated a 79% chance of no change at the US Federal Reserve’s upcoming 30 July meeting, suggesting no change to the Fed’s “wait and see” stance on rates.

The commodity market in June 2025 showed distinct trends. The S&P GSCI Commodity Index experienced a significant increase of 3.5%, primarily driven by an 7.1% surge in crude oil prices. This indicates a strong upward trend in global energy costs during the month, potentially reflecting supply concerns in light of Mideast conflicts. Concurrently, gold prices reached a new all-time high, peaking at $3,432 per troy ounce on 13-June-2025. Bitcoin concluded June 2025 at US$108,527, registering a 4.6% one-month return and a 17.5% year-to-date return.

Meanwhile, the US dollar weakened against the Malaysian Ringgit, ending June-2025 at 4.2102, from 4.2568 in May.

Outlook

Recent economic data shows that the US economy is holding up amid President Trump’s tariffs which is expected to be enforced within first week of August, with negotiations still ongoing with major trade partners. The labour market remains firm and supportive of economic activity, as indicated by healthy nonfarm payroll employment and wage growth in June. US consumer sentiment improved in June – the latest University of Michigan Consumer Sentiment Index for June 2025, at 60.7, signals a meaningful uptick from May’s 52.2.

June 2025 saw the Federal Open Market Committee (FOMC) in the United States maintain the federal funds rate unchanged at 4.25%–4.50% for the fourth consecutive meeting. The Federal Reserve indicated that it is waiting for more clarity on the outlook for inflation and economic activity before making any adjustments. Despite this hold, market forecasts and dot-plots continue to suggest that two 0.25% rate cuts are anticipated before the end of the year. As the markets continue to price further rate cuts, we can expect a soft landing for the US economy in the second half of 2025.

China’s June economic data reveals a dual-speed economy. Retail sales increased by 4.8% year-on-year in June 2025, slowing from 6.4% in May and missing market expectations of 5.6%. In contrast, the value-added industrial output grew a robust 6.8% year-on-year in June, accelerating from 5.8% in May. This exceeded the 6.4% cumulative growth for the first half of 2025 and marked the sixth consecutive month of growth above 5%. China’s second-quarter GDP grew 5.2% as exports show resilience against Trump’s trade war, all thanks to Beijing’s decision in April to spur a round of stimulus measures and the front loading of exports ahead of tariffs.

The provided table offers information on the cumulative performance of selected KDI portfolios since their launch on February 15, 2022. The portfolio returns (in USD) range from 0.1% to 4.5%. Year-to date, the portfolios recorded returns within a range of 0.8% to 2.6%.

The S&P 500 index is up by 5.5% this year to end of June 2025 as investors shrugged off tariff concerns. In terms of sectoral performance within the US, Technology emerged as the leading sector for the third consecutive month, recording a substantial gain of 9.7% and spearheading the market’s upward trajectory. Communication Services also delivered strong profits, increasing by 7.2%. Conversely, Consumer Staples (-2.2%) and Real Estate (-0.5%) were the only two sectors to conclude the month in negative territory, indicating a potential shift away from defensive assets as market confidence improved.

The US trade and economic policies continue to be major drivers of market volatility. The recent tariff truce between the US and China represents a substantial de-escalation in trade tensions, though it remains to be seen if a lasting agreement can be reached as negotiations continue. The Trump administration is set to slap tariffs as high as 50% on dozens of countries on 1st August, including top trade partners like Canada, Mexico, Japan, and EU, unless targeted nations reach a trade deal with the U.S. beforehand. However, with fresh conflicts arising in the Middle East, and domestic difficulties in the US, we expect market swings and shocks to continue to be a regular occurrence.

KDI’s portfolios are well diversified to withstand market fluctuations, and will remain vigilant in monitoring changes, adjusting asset allocation when necessary. As market volatility rises, the portfolios may shift to a risk reduction mode to protect downside. This strategy aims to safeguard your investments during uncertain times while remaining poised to take advantage of favourable conditions.

Kindly note that the performance and asset class exposure illustrated above are derived from five proxy portfolios. The actual performance and exposure of your investment portfolio may differ due to the customisation made by our proprietary algorithms that tailors the investment to your unique risk profile, as well as the timing of market entry.

Our Perspective: The calm before the Tariff storm?

June has proved to be a month where cautious optimism finally found its footing. The recovery that began to take shape last month in May gathered meaningful momentum, with US markets reaching new peaks and international markets rallying reflecting broadening investor confidence. This may not be a fleeting ‘bounce’ after all – noting the sustained nature of the advance suggests investors cozying up to risk assets again, supported by the continued easing of trade tensions between Washington and Beijing.

Yet beneath this optimism, familiar tensions simmered. The Middle East remains a powder keg, keeping the commodity markets on edge and sending both gold and oil to elevated levels. What’s interesting is that despite the heightened geopolitical risks, the market’s ability to climb higher speaks to an underlying resilience that had been missing in previous months.

As we look ahead, we can expect this newfound confidence to be tested with Trump’s August tariff deadlines looming over key trading partners. While the market’s current temperament may suggest a willingness to look towards long-term opportunities, the backdrop of anticipated rate cuts, slower growth and some hope in the trade negotiations are pointing to a mixed outlook for this month. Developments in the coming weeks will paint a clearer picture on whether such optimism can withstand the next wave of uncertainty.

Citation:

https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

https://edition.cnn.com/2025/06/26/economy/us-gdp-q1-final