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An indecisive week paints a picture of what’s to come

If it is not an interesting week of trading the world has shut down. We live in a dynamic world, so it is always interesting to see how the broader markets perceive events as they unfold.

If it is not an interesting week of trading the world has shut down. We live in a dynamic world, so it is always interesting to see how the broader markets perceive events as they unfold.

 

That said, we know stock markets are forward looking, so how to view this week’s events?

It was a strong week, with major indices in the US, Europe and our own back yard in Asia registering good gains. It is not bull market territory, or anywhere near those words, but it gives us pause to consider – what’s next.

Things changed between this time last week and today. For starters, the S&P/ASX200 is up 0.50% to 6845.10 as of last night. Where it goes from here is not a new question, but it is always the million-dollar question.

It only took a week of positive direction for calls to come out it is time to pile into the stock market. Some said it’s a once in a lifetime opportunity to buy. At the same time those calls were being made, European indices took a step backwards as the European Central Bank (ECB) further distanced itself as being a market supporter.

 

Are the calls for a once in a lifetime opportunity correct?

It may be, but there is a broader expectation that recession is not far away for the US and Europe, and it doesn’t matter that much if we escape a technical recession in Australia, as we are a trading nation that will get caught by a global economic downturn.

However, markets are also forward looking. There is a lot of commentary that analysts are still not factoring in the downturn ahead for corporate profitability, and if we are looking at a relatively widespread recession next year, it’s likely a fair comment.

However, corporate balance sheets are generally strong, so it would take a serious hit to manifest into a material shift in corporate Australia’s dividends. Those strong balance sheets mean the better companies will also be looking at merger and acquisition opportunities.

As of Thursday’s close, the S&P/ASX200 was up 1.7% on the day, but down 8.05% year to date, and that’s not a poor result. Through much of the year the index has experienced volatility, but a 10% downside is a figure many market followers would have experienced multiple times year to date.

 

What stocks performed?

Let’s look at the big hitters. BHP as of last night was up 2.39% to $39.46, but it traded the week within a $1.00 range. That provides little data on what to project ahead.

Switch to financials and NAB traded between $32.00 and $31-90, with an intra-day dip to $31-34. Again, no picture on what’s in store for financials. For a change of pace, building materials group Boral started the week at $2.75 and on Thursday’s close was at $2.77, following a strong day. That is not a shift you would talk much about.

It paints a picture of a market that is waiting for news. Every day there is opportunity, but we know inflation and interest rates will be the dominating factor – until they are not. Markets are forward looking, if we enter recession the stock market will not bottom with the fortunes of the broader population – it will have entered an upward cycle at least six months ahead of that point, and on current data that is likely to be towards mid-next year, indicating a potentially good start for share markets in 2023.

 

 

Analysis as at 28 October 2022. This information has been provided by WealthHub Securities Ltd and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). Whilst all reasonable care has been taken by WealthHub Securities in reviewing this material, this content does not represent the view or opinions of WealthHub Securities. Any statements as to past performance do not represent future performance. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, we recommend that you consider whether it is appropriate for your circumstances.