The Australian and US stock markets are set for a bumpy ride this year, says the analyst who publicly called both the GFC downturn and the GFC low in advance.
David Hunt, who the Financial Review has called The Bellringer, says interest rates will rise throughout the year, causing the ASX All Ordinaries to fall in tandem with a huge slump in the Dow Jones Industrial Average in the last quarter of 2017.
The markets will then take a couple of years to recover, predicts Mr Hunt, who is the founder and chief strategist for the Profit Hunters Group and a regular markets commentator on Sky Business News.
“The second half of this year will be a much tougher time for equities than the first half,” says Mr Hunt.
He has drawn up charts that show the predicted cycle for this year on the All Ordinaries and the Dow.
“According to my research, the All Ordinaries will peak in January, reach its lowest level in September and recover slightly by November, with the S&P/ASX 200 dancing to a slightly different tune” he said. “The Dow, however, will peak in mid-July, then fall sharply to its lowest point in November. The slump is likely to last for a couple of years.”
The ASX 200 has risen 22% since February but Mr Hunt says this rally will not last because rising interest rates will lure investors to higher-yielding cash rates, which are safer than equities. The first step in higher rates was taken after the US election last year, when the US Federal Reserve raised its official rate from 0.5% to 0.75%.
The Dow slump into November will be severe because:
- Instead of the US Federal Reserve pumping easy money into markets, there will be demand for capital not seen for many years as the US funds the infrastructure promised by incoming US President Donald Trump.
- The US government will spend money to build bridges, create jobs, and run budget deficits. The government’s demand for money will draw funds out of other sectors such as equities.
US bond prices will also fall as 2017 progresses as China moves away from investing in US bonds. This coincides with the Fed turning its back on quantitative easing and no longer supporting bond prices.
Higher US interest rates will push up rates here because Australian banks need to borrow from offshore.
And like in the US, rising interest rates here will lure investors to safer, higher yielding cash rates and that may threaten Australia’s property boom.
“I would not be surprised if this is the year that the public gets interested in the stock market again in a big way,” he said. “But interest rate rises will choke off people’s exuberance for the stock market because they will find they can put money in the bank and get a good interest rate instead of buying bank stocks.”
Every year since 1992, Mr Hunt has published in advance charts that predict the highs and lows for that year in Australia and the US. He presents them to the Australian Technical Analysts Association, releases them to his clients, and publishes them on his website.
His previous forecasts correctly predicted the tech wreck in March 2000, the pre-GFC high in November 2007 and the GFC low in February 2009.
Below are his charts outlining what’s in store for equities this year.
