New year, New You

Ishan Dan | All things Market Related – Month of June 2019

Person Holding Lighted Sparkler

“A time to say goodbye and a time to say hello. A time to bid farewell and a time to look forward. A time to let go and a time to learn new things, that is what happens when the New Year rings in.” Catherine Pulsifer 

The ASX200 Index closed the month of June up 3.47% extending its positive consecutive streak to six months to be trading at its highest level since December 2007. The index all-time high sits at just over 6800 points reached on November 1, 2007.

Here is the end of year stats table:

The Australian stock market had another bumper year closing +17.22% (calendar year) and +6.85% (financial year). Both outstanding results. Wall Street also closed in the black making it one of their best years with the Dow Jones Industrial Index finishing +9.59% (+14.03% calendar year) and the S&P 500 was 8.22% (17.35% calendar year). Economists are attributing the success to the realisation that the world wasn’t going to end and expectations that the US Federal Reserve will cut rates helping boost the market over the last few months. On the trade war front, China and US made some progress by agreeing to continue talks in Washington. Still no deal to end the trade war. Chinese President Xi Jinping has urged for a mutually beneficial deal in next week’s talks. The real fear is that the trade war negotiations result in a dampening in market sentiment and global economic activity.

Overall, it was a strong year for global equities. In the commodities space, iron ore was the main winner rising +73% and gold up almost 13%. The big losers were oil coal -38.175, -21.15% and copper -10%.

Key themes for investors from the last financial year are:          

  • Not to listen to all the noise and media noise
  • Cash rates are ticking lower
  • A pick up in global growth is underway but markets are running hot
  • Trade war headwinds continue
  • Risks remain in the Australian property market

On the local bourse, the last six months saw the market rebound from what was a volatile Christmas trading period partly due to US trade war tensions, falling property prices and election concerns. But with a surprise Coalition victory, RBA rate cut and a bottoming in house prices the market rebounded sharply. The ASX 200 managed to return its best June half since the 1990’s. You can see in the table below, just how much it was a game of two halves. All red in the 2nd half of 2018 and blue the 1st half 2019.

Asset class returns from Stanford Brown Monthly

The Reserve Bank slashed interest rates to a historic low of 1.00% to help in reducing unemployment and raise inflation to the 2-to-3pc target band. ANZ, CBA, NAB and Westpac will pass on varying degrees of cuts to customers. ANZ has already passed on the full cut to its customers. The 25bps rate cut follows on from last month’s 25bps cut. There are signs that housing demand is starting to pick back up with auction clearance rates in Melbourne and Sydney rising back to over 70%. The recent rate cut will only help support the housing market as the big banks pass on varying degrees of cuts to customers.

The odds of another cut are unlikely.

July outlook

With tax loss selling out of the way, it’s time to buy back. The month of July is almost always a positive one as investor’s buyback the stocks that were sold pushing prices higher. The rally in July can sometimes last three weeks as stocks can recover by between 10% to 30%. It’s worth keeping an eye out for any potential tax loss selling that may occur over the first two weeks of June.