Australian Equity Markets: A Post-Election Rally on the Horizon?

The re-election of Australia’s Labor Party under Prime Minister Anthony Albanese in the May 2025 federal election has sparked optimism among analysts about a potential rally in Australian assets. With Labor securing a historic majority of 85 seats, the government’s strengthened mandate has positioned it to advance its agenda on climate resilience, economic equity, and trade diplomacy. However, the path to market gains remains fraught with global economic headwinds and domestic fiscal challenges.

Immediate Post-Election Context: Policy Certainty Amid Global Uncertainty

The election outcome has reduced political uncertainty, a key factor for investors. Treasurer Jim Chalmers emphasized that global instability—particularly U.S.-China trade tensions—remains the government’s top priority. The International Monetary Fund (IMF) has already downgraded Australia’s 2025 growth forecast to 1.6%, a 0.5% reduction from its earlier projection, citing risks from U.S. tariffs and geopolitical conflicts. This downgrade could cost the economy $13 billion, underscoring the fragility of Australia’s export-reliant economy.

Labor’s fiscal outlook includes a projected $42 billion budget deficit for the next financial year, driven by global trade disruptions and energy costs. Despite this, the government’s focus on domestic policy continuity—such as maintaining tax policies on negative gearing and franking credits—has calmed investor nerves.

Historical Precedents: A Mixed Bag, But Recent Trends Favor Rally

Analysis of elections since 1987 reveals a nuanced picture. While Labor’s victories have produced mixed market results—markets rose post-election in 1993, 2010, and 2022 but fell in 1987, 1990, and 2007—recent trends are overwhelmingly positive. Since 2016, all five federal elections have seen the All Ords Index rise an average of 9.4% in the six months following the vote, regardless of the winning party. This suggests that post-election policy certainty and reduced legislative uncertainty are driving investor confidence.

The 2022 Labor victory, for instance, saw only a 0.7% gain in the All Ords due to global headwinds like RBA rate hikes and energy crises. However, if global conditions stabilize in 2025, a repeat of the post-2019 Coalition victory’s 7% gain or the 2022 modest recovery could materialize.

Sector-Specific Impacts: Winners and Losers in a Labor Majority

Labor’s policy priorities will disproportionately affect certain sectors:

1. Renewables and Critical Minerals:
   The government’s "Future Made in Australia Act" targets renewable energy and domestic manufacturing. Sectors like solar (e.g., ) and critical minerals (lithium, cobalt) could see sustained investment. The Greens’ 10 seats may also push for stricter environmental regulations, favoring green tech firms.

2. Housing and Construction:
   Labor’s focus on affordable housing and infrastructure spending could benefit construction companies (e.g., ASX:WBC (Woolworths) and ASX:CBD (Cbd Capital)) and real estate developers. However, the budget deficit may limit public funding, requiring private-sector collaboration.

3. Trade-Exposed Sectors:
   Industries reliant on U.S. exports—such as agriculture and manufacturing—face risks from tariffs. While Labor seeks exemptions, the prolonged dispute could pressure stocks in sectors like mining (ASX:RIO (Rio Tinto)) and energy (ASX:SOL (SolGold)).

Global Risks: The Cloud on the Horizon

The election’s positive outcome hinges on resolving two critical global challenges:
- U.S.-China Trade Tensions: Australia’s trade-exposed economy is vulnerable to tariffs and supply chain disruptions. The government’s diplomatic efforts to secure exemptions are critical but uncertain.
- Commodity Price Volatility: China’s demand for iron ore and coal remains pivotal for resource stocks. A slowdown in Chinese growth or shifts in energy policy could destabilize these sectors.

Conclusion: Cautious Optimism, Data-Driven Decisions

While the election has reduced domestic political risk, global instability remains the key determinant of market performance. The 1.6% GDP growth forecast and $13 billion economic hit from tariffs underscore the fragility of Australia’s recovery. Historically, post-election markets have rallied due to policy continuity, and 2025 could follow this trend—potentially yielding gains of 2-5% in the All Ords Index.

Investors should prioritize sectors aligned with Labor’s agenda (renewables, infrastructure) while hedging against global risks. Monitor the ASX:EMT (Energy Metals) ETF for critical mineral plays and ASX:XFD (Financials Index) for interest rate sensitivity. With 9.4% average post-election gains since 2016, the path to a rally is clear—but only if global clouds part.

In the words of Treasurer Chalmers: “Australia’s economy is resilient, but the storm clouds are real.” Navigating this environment requires a balance of optimism and vigilance.