The Weekly | Markets rally whilst querying the inflation fallout from trade tensions

Markets continue to rally both at home and abroad. Read below to discover the stocks our investment team favour as we assess the potential inflation fallout from trade tensions.

Market Updates

The S&P/ASX 200 Accumulation Index ended the week up 3.0%, with Friday marking its seventh consecutive day of gains and the Index is now sitting 3.9% above pre-Liberation Day levels. The gains were led by the technology (+9.6%), REITs (+5.7%) and healthcare (+5.3%) sectors, with all other sectors also in positive territory. The S&P/ASX Small Ordinaries Accumulation Index increased 3.1% in the week now sitting 2.8% above pre-Liberation Day levels. The biggest commodity moves include Brent oil, down 6.9% in the week and 17.3% in the past month, and copper which fell 4.5% and is down 8.1% for the month. The major news over the weekend was the convincing win by Labor in the Australian federal election.

Global markets were buoyed by U.S. President Trump rolling back some of his initial tariffs on cars and auto parts, Commerce Secretary Lutnick announcing that a major trade deal was nearing the finish line, and a statement from the Chinese Commerce Ministry indicating it was “evaluating” a request from U.S. trade officials to begin trade negotiations. U.S. large caps (S&P 500) were up 2.9% for the week, marking the Index’s ninth consecutive day of gains. U.S. small caps (Russell 2000) were similarly up 3.2% and the MSCI World (AUD) was up 2.1%. Equity benchmarks in emerging markets including India, Mexico, Brazil and South Korea have recouped all of their losses since Liberation Day and are among the best performers globally.

From Tuesday to Thursday this week, the Wilson Asset Management Investment Team will be attending the Macquarie Australia Conference where listed companies typically provide trading updates to the market. We believe tariff uncertainty and concerns about the economic outlook could result in some companies downgrading guidance and have been positioning the portfolios accordingly.

Stock Watch

Woolworths Group (ASX: WOW) and Coles Group (ASX: COL)

Woolworths Group and Coles Group reported March quarter sales results last week. While we continue to hold both supermarkets in the portfolio, we maintain a higher weighting towards Woolworths as we see greater upside to its share price in the medium term. In its quarterly update, Woolworths reported like-for-like sales growth of 3.0% in its Australian food segment, an improvement on the previous quarter and supported by a collectables program and the easing of negative impacts from industrial action. Coles reported sales growth of 3.2%, with the gap in sales growth between Coles and Woolworths narrowing. These updates were consistent with the ABS retail sales data for March, where grocery momentum appeared to have improved from a shift to eating at home and the flood impacts in Queensland and Northern New South Wales.

Held in: WAM Leaders (ASX: WLE) 

oOh!media (ASX: OML)

oOh!media, a provider of out-of-home advertising solutions, released a trading update last week ahead of expectations, with revenue growth of 13% and growth in Australian media revenue of 16%. oOh!media is leveraged to the RBA’s rate cutting cycle which supports ad spend from higher consumer and business confidence. Despite last week’s announcement that the CEO will be stepping down in the second half of this year, we anticipate further earnings growth as the company continues to ‘right-size’ the cost base and from structural tailwinds stemming from the decline of other traditional media formats like print and television. Just this morning oOh!media announced its most significant, large format Out of Home contract win of the past 25 years with Transurban (ASX: TCL).

Held in: WAM Capital (ASX: WAM) and WAM Active (ASX: WAA)

Quanta Services (NYSE: PWR)

Quanta Services, a leading specialised contracting services company that provides infrastructure solutions across the utility, renewable energy, pipeline, and energy industries, delivered a strong first quarter 2025 result last week. The company achieved 24% year-over-year sales growth and raised its full-year guidance, with the stock closing up 11.8% in the week and 25.3% in the past 12 months. The strong earnings growth is supported by continued visibility across its core end markets, with demand trends remaining healthy due to the largely non-discretionary nature of Quanta’s services. Management also noted that the company was selected for a major electric transmission upgrade project by the Los Angeles Department of Water and Power. With a current backlog of US$35.3 billion, Quanta is well positioned to deliver double-digit earnings per share (EPS) growth for the foreseeable future.
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Held in: WAM Global (ASX: WGB)

Geebung Industrial Park (Centennial Property Group)

Progress at Geebung Industrial Park, a ‘growth’ real estate investment in the WAM Alternative Assets investment portfolio, continues to be strong. Our investment partner Centennial Property Group has successfully completed stage one of the project ahead of schedule, with stage two also underway. We expect the newly built industrial park to attract strong demand from buyers and lessees, with over 35,000sqm of gross lettable area strategically located in Brisbane’s northern industrial hub, connected to the Gateway Motorway and Port of Brisbane.

Held in: WAM Alternative Assets (ASX: WMA)

Markets question inflation fallout from trade tensions

Unless trade tensions continue to de-escalate, there is a view in markets that we could see different inflation outcomes across different countries. Within this view, countries that impose higher tariffs, or retaliate more against their imposition, would experience higher inflation than those that do not, at least in the short-term. If this view is correct, there would be material implications for interest rates. Low inflation countries could afford to run lower interest rate settings than high inflation countries. Clearly, the U.S. is in focus as a high tariff, high inflation candidate, while Australia is on the low end of the retaliation and inflation spectrum. One would therefore think that Australian rates could afford to be set lower than U.S. rates, with potentially positive implications for Australian equities.

If we are entering such a regime, inflation expectations embedded in bond market pricing do not reflect it. On both short- and long-term horizons, U.S. inflation expectations do not look exceptionally high relative to Australia or other major economies. This could be because investors anticipate some rolling back of tariffs as the U.S. strikes trade deals with its major trading partners. It could be because U.S. tariffs are expected to be a one-off shock to prices that will be offset by temporary demand weakness, such that there are no medium-term implications for inflation differentials across countries. It could also be because investors do not anticipate much fracturing in globalisation from either trade or capital flow perspectives. Regardless of the reason, the key point is that markets are not pricing in much inflation scarring from U.S. trade developments.

From an investment perspective, we have question marks about how realistic inflation pricing is across bond markets. We think that U.S. inflation could be higher, making it important for investors to focus on pricing power as a thematic. From an Australian perspective, we think that lower rates should eventually support the domestic economic cycle – but near-term, they could be negative for bank net interest margins which translates to lower earnings for the banks. We prefer to play lower Australian rates through bond proxies such as real estate and infrastructure stocks.

Index returns performance table

WAM Income Maximiser (ASX: WMX) Webinar

Register below for our Investment Portfolio Update and Q&A webinar at 11:00am (Sydney time) on Thursday 22 May 2025. Chairman and Chief Investment Officer Geoff Wilson AO, Lead Portfolio Manager Matthew Haupt and Portfolio Strategist Damien Boey will provide the first update on the construction of the investment portfolio, discuss their market outlook for equities and corporate debt and answer your questions in an extended Q&A. You can submit your questions ahead of time, when you register for the webinar here.

Livewire Markets Fund in Focus: WAM Global

WAM Global Lead Portfolio Manager Catriona Burns sat down with Livewire Markets to discuss how an active, quality-focused investment philosophy leads to strong returns. You can watch the interview on Livewire Markets’ website here.

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If you have any feedback you would like to share or wish to speak to a member of the Wilson Asset Management team, please respond to this email or call Christopher Ball on 02 9247 6755. You can also email us at [email protected]​​​​​.

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^*All Australian S&P indexes in this table are accumulation indexes, meaning they account for both price changes and the reinvestment of dividends, providing a measure of total return.

^#MSCI World (MSCI Daily Total Return Net World) and MSCI World SMID (MSCI WORLD SMID CAP Net Return) are both in AUD and are total return indexes i.e. include share prices and dividends. S&P 500 Index and Russell 2000 Index are similarly total return indexes.

^{^}Corporate bond yields represent the return investors receive for holding debt securities issued by companies. These yields vary based on factors such as the issuer’s credit rating, economic conditions, and market interest rates, serving as a key benchmark for corporate borrowing costs.

^**Australian long-term government bond yields represent the interest rates on government debt securities with extended maturities, typically 10 years or more. These yields reflect investor expectations for inflation, economic growth, and monetary policy, serving as a key benchmark for long-term borrowing costs in the economy.

^##The RBA cash rate refers to the interest rate set by the Reserve Bank of Australia (RBA) for overnight loans between banks. It serves as a benchmark for borrowing costs across the economy, influencing interest rates on mortgages, savings accounts, and business loans.