Weekly recap
What happened in markets
The Australian sharemarket finished up 0.7% last week, boosted by key company earnings results. Recent weakness in the price of iron ore paused, which supported our major miners. Meanwhile, lower oil prices hurt stocks like Santos (-5.6%), Ampol (-4.9%) and Woodside Energy (-1.1%). Company specific news included WiseTech Global’s (+28.2%) full year earnings result, which showed high quality double digit growth that topped estimates. A key part of the logistics software company’s report was management’s optimistic FY25 guidance, driven by the launch of three new products in the second half of the year.
US sharemarkets kept positive momentum last week, as the S&P 500 approached the all-time high set in July. Speaking to the broad-based strength in the market, we saw that 70% of the stocks in the S&P 500 had moved above their 50-day moving averages. Bond yields declined as investors increasingly bet the US Federal Reserve would cut interest rates in its September meeting. US Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Economic Symposium solidified these expectations, as he said, “the time has come for policy to adjust”. As you’d expect, cyclical areas of the market like homebuilders, automakers and retailers were particularly strong last week.
European sharemarkets were also buoyed by increased central bank interest rate cut expectations, evidenced by lower bond yields, which supported asset prices. Retail and real estate stocks were the main winners in the region, while softer oil prices lead the Oil & Gas sector (-1.1%) lower. Economic data revealed August Purchasing Managers’ Indexes had actually improved and weren’t as bad as thought. Politically, French President Macron began consultations with party leaders to decide on the country's next prime minister. The outcome could affect the direction of France’s Government, as Macron looks to form a coalition amid a fragmented political landscape.
Stock & sector movements
What caught our eye
We thought we would take the opportunity this week to reflect on the “bungee jump” correction experienced by global financial markets in early August. Market prices can often swing wildly due to shifts in investor sentiment rather than changes in fundamental factors, and that is precisely what happened.
Putting things into perspective, the S&P 500 in the US, the Nikkei 225 in Japan, and the ASX 200 in Australia, have recovered most if not all the losses sustained during the sell-off:
As the Investment Committee expected at the time, the volatility experienced was part of a typical market correction, the kind of which usually occur every 12 months. These fluctuations are driven more by psychological factors, like mood swings and cognitive dissonance, than by rational analysis, leading to overreactions.
Importantly, the experience from the last few weeks yet again emphasised the need to remain emotionally balanced and act rationally during times of volatility. If you are ever in doubt during these times, your Cutcher & Neale advisor is here to help with any questions or concerns you have regarding your individual circumstances or asset allocation.
In other news, Chair of the US Federal Reserve, Jerome Powell, spoke on Friday at the Jackson Hole Economic Symposium. This annual event is attended by central bankers, policymakers, academics, and economists from around the world.
During his speech, Powell indicated that the time has finally come, with the Federal Reserve poised to cut interest rates next month, more than 2 ½ years after it started hiking borrowing costs in order to crush pandemic-spurred inflation. Markets reacted favourably, with S&P 500 trading 1.1% higher following the speech.
Powell and his fellow Fed policymakers, after holding rates “higher for longer,” are now walking a tightrope between trying to continue to slow inflation and protect the US jobs market. At the time of writing, the market anticipates rate cuts in September, November, and December, with year-end rates expected to be 4.25-4.50%:
The week ahead
Some important local economic releases this week, with July Consumer Price Index (CPI) and Retail Trade data giving us an update on the inflation story and how consumer demand is holding up. According to CommSec, the annual CPI rate could dip from 3.8% to 3.4% and spending is expected to be flat.
Internationally, US GDP for the June quarter will be closely watched and will have implications for near-term interest rate cut expectations. It is expected that US economic growth will remain unchanged at an annual growth rate of 2.8%. Meanwhile, China's Industrial Profits and Purchasing Managers’ Indexes will provide us with insight into how the economy is faring. Further softness is expected and is a key reason for recent weakness in the iron ore price.
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