Market Update September 2022
The Australian economy has taken somewhat of a hit this year, but there are reasonable signs for optimism ahead.
Current Market Position:
As of yesterday, the Aussie sharemarket lifted for the first time in three days and finished near session highs, with the ASX 200 up by 86.5 points or 1.3 per cent, to 6086.4. This has the ASX 200 sitting at roughly where it was this time last year, but approximately 11% lower than it was on January 1 2022.
To give added context, the S&P 500 (the largest 500 companies on the US share market) is sitting at almost 20% lower than it was in January. The major cause for the drops in share markets around the world are linked to ongoing inflation issues, quickly rising interest rates and supply line difficulties. On the domestic front, mining continues to perform well and is assisting the overall local market performance.
Interest Rates:
The recent Reserve Bank minutes for the month of September show that there is discussion around whether the next rate rise should be 0.50 percentage points or only 0.25. In any case, homeowners and borrowers can expect further rate rises over the months ahead. The Reserve Bank did acknowledge that “monetary policy operates with a lag and that interest rates had been increased quite quickly and were getting closer to normal settings.”
Westpac chief economist Bill Evans said he was now expecting another 0.5 per cent rise in October.
But he anticipates the central bank will slow to quarter point hikes in November, December and February, where rates will peak at 3.6 per cent.
What this means for investments:
Share markets don’t like surprises and the abrupt interest rate rises early this year led to sharp drops on the share market. Now that interest rate movements are more expected, current share prices have factored in further rises and what this might do to company earnings. What remains to be seen is the impact that the inflationary pressures will have on company performance. No asset class will be untouched by the impact of inflation and this generally takes time to work its way through an economy until we return to the Reserve Bank’s target band of 2% - 3%.
The property market appears to have slowed, with pricing coming back somewhat depending on the location. Uncertainty remains for those buyers who are trying to lock in new loan repayment amounts with ongoing rising rates. Large scale activity in the market is unlikely to return until interest rates stabilise and future repayments can be more accurately accounted for.
Get comfortable with being uncomfortable
Investors will always experience periods of uncertainty. It is one of the risks versus reward trade-offs. Remember that you never have to make uncomfortable decisions alone, and a diversified strategy will keep you on track for the long term, always bearing the most rewards.