Australian share market soars 50 billion dollars
Australian shares are set to soar at the open after a better than expected US October consumer price report, which has been bolstered by bets that the Federal Reserve will step down its rate rise pace.
The S&P rose 5.54% overnight, with the Aussie market pointing to an early rise of 2.88%.
What Happened
With the Annual CPI peaking at 9.1 per cent in June, Annual Inflation slowed to 7.7% last month, the lowest since January, giving the Federal Reserve some room to ease the pace of interest rate rises and providing some optimism for investors.
How did this affect Markets
Markets soared in America overnight, with the Aussie market set to rise $50 billion or 2.88% upon open.
The inflation figures had experts and investors alike becoming more optimistic about the economic outlook.
This suggests that it may not be the catalyst many investors have been searching for, but it will provide hope. There will continue to be plenty of more volatility to come, however we may be closer to the end of the rate rising cycle.
What Next
However, there is still a sense of nervousness, as many experts believe that the massive market reaction is a combination of a hope-driven rally which is much more than is sensible with the modest new evidence at hand.
Mortgage holders, we should some relief come through in the coming months. Possibly one maybe two more modest rate hikes (0.25% range), before we see a pause through the early to middle parts of 2023, with potential rates cuts towards the end of 2023 early parts of 2024.
At Newcastle Advisors, our financial planners have been relatively cautious over the past 12 months and their views have not altered. With our new clients coming on board, we continue to dollar cost into the market, as there are leading indicators that are providing hope, however we are not out of the woods just yet. It is difficult to get the genie back in the bottle (inflation) and we are yet to see the full affects of interest rate rises filter through the economy.
It is interesting to note, that many experts believe that the stock market is 3-6 months ahead of the economy and what you are experiencing in your day to day life.
With this being said, unemployment will be the next big indicator that we start to see change. There has been a large amount of publicity around the redundancies in the tech space, this will start to filter through other industries as the prolonged affects of inflation and rising interest rates start to filter through.
What does this mean for you?
Many experts believe that this optimism will continue through to the end of the year. With some level of certainty returning to the markets. However, our Newcastle Financial Planners are a bit more conservative and believe we are not out of the woods just yet.
Therefore, when looking to invest, continue to dollar cost average into the market until volatility and certainty returns.
If you are currently fully invested, continue to look at your long term goals and investment strategy. Now is not the time to crystallise losses and jump out of the market. It is time in the market rather then trying to time the market. Especially with where the economy is at, you don’t want to miss the day the market jumps like today as optimism returns.
We would also look to start positioning your portfolio to take advantage of the next cycle, being the value/reflation period. Small caps have been hammered over the last 18 months and they will be the first to show a spark in the recovery, along with energy and financials.
For our clients who are retired and looking to retire, that are seeking fixed interest options, whether that is annuities or term deposits, the next few weeks will prove to be the greatest opportunity before interest rate cuts start to be priced into the markets (if they haven’t already with the US 10 year treasuries falling 0.25% overnight). We would definitely be steering clear of any short term (3-12 months) duration during this period of time.
If you are looking at your home loan and freaking out at where rates are heading, the end is in sight. We need to understand that we are looking at potentially another 0.25-0.50% rate increase before rates stabilise and potentially reduce towards the end of 2023/start of 2024.