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What to Expect in the New Financial Year for the Stock Market

Jul 1, 2024

As we step into the new financial year, it’s important to prepare for the potential developments in the stock market. Here’s an overview of what to expect, focusing on key factors such as inflation, the US election, and sectors that could outperform.

Inflation in Australia and the US

Inflation continues to be a significant concern in both Australia and the United States. Central banks are likely to adjust monetary policies to manage inflationary pressures. In Australia, we anticipate a cautious approach by the Reserve Bank of Australia (RBA), balancing between curbing inflation and supporting economic growth. In the US, the Federal Reserve’s actions will be closely watched, especially with the upcoming election adding an extra layer of complexity.

US Election and Market Impact

The US election will undoubtedly influence market dynamics. Political uncertainty often leads to market volatility, and this election is no different. Policies from the incoming administration could impact various sectors differently, creating both opportunities and risks for investors.

Sectors to Watch

Despite the current market trends, several sectors show potential for outperformance:

  1. Materials and Energy: The ASX200’s composition, with over 40% in materials and energy, positions these sectors for potential gains. Positive news from China, such as economic stimulus or increased demand, could trigger a significant bounce in these sectors, leading to an overall market uplift.
  2. Technology: Innovation and technological advancements continue to drive growth. Companies focused on digital transformation and tech solutions are well-positioned to benefit from ongoing trends.
  3. Healthcare: The healthcare sector remains robust, with increasing demand for medical services and innovations in pharmaceuticals and biotechnology.

Current Market Trends

The S&P/ASX200 is currently in a weak sideways trend, with no clear direction. Initially ranging between 7,600 and 7,900 points, the index has narrowed significantly, now trading within a 100-point difference over the last few weeks. This tightening range suggests the market is prone to a breakout. Technical analysis indicates a potential breakout to the downside due to RSI bearish divergence. However, the market’s resilience is notable, as strong buying activity with high volumes often occurs when the market dips within the current range. This resilience suggests underlying investor confidence.

Outlook for the Financial Year

While we do not expect an immediate rally, the market conditions could improve later in the year. We believe that after the reporting season, possibly in the last quarter of this calendar year, the ASX200 could experience a positive breakout. This optimism is contingent on favorable news from China and stability in global economic indicators.

Investment Positioning

Despite potential soft landings or mild recessions in some of the leading world economies, we believe the best position is to be long and NOT short in the current macroeconomic scenario. Staying long aligns with our confidence in market resilience and the potential for recovery and growth in key sectors.

We encourage you to stay informed and agile in your investment strategies, taking advantage of market opportunities while managing risks effectively.

Thank you for your continued trust in BG Trading. We look forward to navigating this financial year together.

 

Best regards,

Les

BG TRADING

Chief Equities Analyst

bgtrading.com.au 

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Disclamer:

The information provided by BG Trading to you does not constitute personal financial product advice. The information provided is of a general nature only and does not take into account your individual objectives, financial situation or needs. It should not be used, relied upon, or treated as a substitute for specific professional advice. BG trading recommends that you obtain your own independent professional advice before making any decision in relation to your particular requirements or circumstances. Past performance of any product discussed is not indicative of future performance. (We urge that caution should be exercised in assessing past performance. All financial products are subject to market forces and unpredictable events that may adversely affect their future performance).