The ASX shed 1.44% this week, falling on a weekly average for the first time in almost two months.
We weren’t alone – only the Hang Seng was in the green this week, gaining 4.40% to bring one-year loses below 20%.
The S&P500 fell 2.77%, the Nasdaq 4.39%, the FTSE100 1.14% and the Nikkei 225 shed 0.58%, dropping marginally.
Unsurprisingly, the ASX sectors told a similar story, with only Materials managing to gain (+1.41%) as Information Technology (-4.98%) and Financials (-2.76%) took the biggest hits.
Commodities were a mixed bag, mostly down – especially West Texas crude, shedding a whopping 11.07% over the last five days – with only nickel (+16.23%), tin (+4.15%) and zinc (+4.36%) making notable gains.
With China beginning to stir from its latest set of lockdowns, it’s likely we’ll see some very different movements in the market into the new year.
RBA deliberations take centre stage
The RBA’s monetary policy has been the centre of monetary discussion in Australia since rate hikes first began back in May. As inflation begins to show signs of contracting, analysts are keen to dig into exactly what the future holds.
Dylan Zhang, ASX equities analyst at Stake said that the Tuesday rate hike was no surprise, given inflation is still “considerably above the target.”
“That said, there are positive signs that market confidence is growing when compared to the previous hike,” Zhang continued.
“In November, we saw a 19% increase in buys on Stake when compared to the previous month which was primarily driven by consumer price index reports in the US and Australia, and the subsequent rally that followed.
“Meanwhile, the BetaShares Australian Equities Strong Bear Hedge Fund, which investors have used to seek returns during market pullbacks, saw a 53% reduction in activity in November as investors anticipate more growth.
“That said, while some signals have shown a slowdown in inflation, with the latest numbers coming in at 6.9%, we’re still considerably above the RBA’s target of 2-3%.
“CPI inflation appears to be slowing, but the consistently hot jobs market suggests we’ve still got some way to go before we reach the peak.
“Signs currently point to a peak RBA cash rate of 4% in 2023, but there is still lots of uncertainty. For instance, the news of China’s easing lockdowns could help to reduce supply-side inflation in 2023, but the extent of this new policy is yet to be seen.
“If we do see this come into play, we can expect energy and commodity stocks to benefit. This could also have a positive impact on the Aussie dollar, with China being Australia’s largest trading partner.
“During times of volatility, a dollar cost averaging strategy may be the best approach, as timing the market is almost impossible. By being in the market over the long term, investors can increase their chance of benefiting from the next bull run.”
Capital.com market specialist Daniela Hathorn believes the latest economic data points to a potential shift in policy.
“A lot has changed since the last Fed meeting and the latest economic data has had a material impact on market expectations, as expected,” Hathorn said.
“Chair Powell and his team have been clear throughout the last few months that their policy decision would be data-dependent, and while most of the last eight months we have seen inflation getting out of hand and an extremely tight labour market, the last few readings have proved different.
“Given the recent comments from Powell, it's not so much about the pace of rate hikes, which has been the key metric up until now, but rather for how long will rates remain elevated.
“That’s why the updated projections will be important at this meeting, and while the dot plot isn’t always an accurate predictor of future rates, it does give insight into how Fed members are envisioning the rate curve over the coming months, and whether that clashes with the rate curve implied by markets.
“The focus will now be on the November PPI and CPI due to be released on December 9th and 13th respectively, and how the latest inflation prints may condition the Governing Council’s outlook.”
As always, predicting the market is like trying to hit a target blindfolded, but it’s likely someone has hit close to the mark, even in the dark.
Four tips to make the most of 2023 from Wealth Within
Wealth Within chief analyst Dale Gillham returns to share his words of wisdom, offering some tips and tricks to make the most of 2023.
Over the past year there has been a lot of talk around rising inflation and interest rates, and how the RBA will handle the economy.
Following the eighth straight interest rate rise this week, the talk around mortgage stress has also increased and while I would like to be the bearer of some good news, unfortunately that is not going to happen, as I believe more rate rises are coming.
While interest rates have been rising to levels we haven’t seen in over a decade, they are returning to historically normal levels.
Despite the fact that it makes sense to plan for such events if you have a mortgage, unfortunately the average household spends the majority of what they earn rather than planning for the future.
This explains why a large percentage of Australians cannot survive without an income for more than a few months. So, how can households break this cycle?
- Never borrow the maximum of what a lender will lend, always leave a safety buffer.
- When buying a home, never borrow more than 80%.
- When using a credit card or buy now pay later facility, only use it if you can pay it off the next month
- Always categorise your spending into three key areas: what is essential (for bills, the mortgage, etc.) to maintain your lifestyle, what is important but not critical if you don’t have it and spending on lifestyle choices, which you can do without.
There is an old saying from US footballer Jim Rice that states ‘I will do today what others won’t, so tomorrow I can do what others can’t.’
Before this year ends, take the time to sit down and plan, and then put it into action, so that by this time next year you will be in a much better position.
What are the best and worst performing sectors this week?
The best performing sectors include Materials and Consumer Staples, which are both down under 1% followed by Utilities down just over 1%.
The worst performing sectors include Information Technology down over 5% followed by Energy down over 3% and Financials down over 2%.
The best performing stocks include Fortescue (ASX:FMG) Metals up over 5% followed by Alumina up over 4% and Orica up over 3%. The worst performing stocks include Downer EDI down over 23% followed by Block down over 9% and IGO down over 8%.
What's next for the Australian stock market?
The All-Ordinaries index is finally moving down for the first time in over eight weeks. As at the close on Thursday, it is down around 1.8% and has fallen through the previous major high set back in August of 7,386 points.
While investors are concerned about the Australian stock market and the economy in 2023, I don’t believe they need to be overly concerned. While it is possible the economy could fall into a recession, I believe the All-Ordinaries Index will perform better next year than it did this year.
The current move down is a normal part of market cycles and, as I have mentioned previously, there is strong support between 7,000 and 7,200 points or roughly 2 to 5% from where it is currently trading. If the market does fall a little further than those levels, I don’t believe it will be by much.
Right now, I urge investors to treat the current fall as an exciting opportunity to buy good stocks at cheaper prices rather than with concern or fear, as I believe you will be well rewarded when the time comes to buy.
Dale Gillham is chief analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.
Small cap wins for the week
It’s been a tough year for small caps, with the Small Ords down 19.24% for the year to date.
It seems many junior explorers and small cap companies are taking the opportunity to re-invent themselves, with a raft of board changes (Lake Resources NL (ASX:LKE, OTCQB:LLKKF), maiden resources (Latin Resources Ltd (ASX:LRS) and Carnavale Resources Ltd (ASX:CAV) just this week) and even a new website for Predictive Discovery Ltd (ASX:ASX:PDI), which you can find here.
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