7th July 2025

Index Movement Last Week

S&P500+1.7%
Nasdaq+1.5%
Aussie ASX200+0.1%

In a holiday shortened week the big news was the employment numbers which on balance showed an economy with healthier labor markets, stronger output, and less inflation potential than previously estimated (or feared). That was enough for new all-time highs as stocks continue their recent surge.

Bulls are in full control. Inflation is tame, the economy is fine and if it wasn’t for the still unknown final tariffs, the Fed would have cut rates by now. That will happen before the end of the year. More importantly, traders have decided there will be no trade war.

Whilst the outlook for stocks is favourable, the pace of this recent rally is unsustainable. A near-term pullback and consolidation would not be a surprise.

Looking at history, the month of July has a good record, being the second best performing month of all. Things change for August and September though which are the two worst months. A flattening in the rate of gains that leads into some kind of pullback is therefore the expected movement over the coming 3 months.

For the rest of my ramblings this week I want to talk about currency. Specifically the US Dollar.

It very much looks like the US dollar will decline. That means, for those of you holding US assets but spending in Aussie dollars, the Aussie equivalent of those assets could well decrease as the AUD.USD exchange rate increases.

The good news is there is something you can do about it and that is to hedge your position. Call us if you want to do that and we will explain how.

Why do I think this will happen? Several reasons.

  1. Interest rates. The Fed said last week that they would have cut rates last month but they decided to wait and see what impact Trumps tariffs would have. So far the impact has been minimal and they are very unlikely to cut in July for the same reason. But the fact is, rate cuts are coming in the second half of the year.
  2. Trump. Trump has been openly critical of the current Chair Powell. Calling him “Mr Too Late” and “Not a Smart Person”. Trump has said he wants rates 2% to 3% lower. He wants a weaker dollar to improve US exports. Powell isn’t doing what Trump wants which is why Trump has been calling him names like a bully in a playground. Powell’s term is set to end in May 2026 and Trump will nominate his successor. Clearly Trump will nominate a patsy. Everyone knows this and therefore everyone knows rates will be coming down next year also.
  3. The Big Beautiful Bill. Trumps tax bill has been passed. Whilst there are many impacts, the important one for the exchange rate is the increase in debt. The bill will increase the US government’s authority to borrow, known as the debt limit, by $5tn. The US treasury secretary, Scott Bessent, has predicted the government will hit the limit by August. Then it will get increased again. This is another way of saying the Fed will print money and give it to the government to spend. Printing money means increasing the supply of it and any time you increase the supply of an asset you decrease its value.

This chart shows the supply of money for the last 10 years. Pretty clear trend here.

I can see many reasons why the Aussie should rally and very few for why it should fall. Therefore, hedging this risk seems the sensible thing to do

US Tax on Dividends

One other impact of Trumps Tax Bill is US withholding tax on foreign investors. As I understand the bill this only impacts dividends and not capital gains. Currently the US applies a withholding tax of 15% on dividends. This will increase to 20% and increase 5% more each year to end at 30%.

The actual impact to us is minimal. For starters, if you pay tax in Australia you can deduct this withholding tax as tax already paid on your dividends. Second, US dividends are exceedingly small. Take Nvidia for example, this $160 stock pays an annual dividend of $0.04. That’s right just 4 cents. Does anyone care about an extra 5% tax on a 4cent payment?

So forget about this headline. It makes next to no difference to us.


Warning

Stock values can go down as well as up. It is possible to lose 100% of your investment in a stock. Any advice given by Capital 19 is general advice only and does not take your personal circumstances into account and might not be suitable for you.