24 JUNE 2019
The Australian and US markets have seen very strong growth since Christmas. As at 21st June the ASX 200 closed at 6,651, up 15% from the 31st December. We are closing in on the all time high, just before the global financial crisis, of 6829 which was set on 1st November 2007.
The market has done a lot more than just ‘get back to where it was’ as shares have also been paying regular dividends throughout this period. While international markets have also done well the Australian market is certainly a standout and over the last six months has been one of the best performing markets in the developed world.
A lot of questions are being asked on what’s next with the market, and is this the time to sell. As always the media seems to find reasons to be pessimistic regardless of whether the market is weaker (such as around the Christmas period) or strong like we are seeing now. We can say with some certainty that there will be a correction at some point in the future but as always we don’t know when, or what it will look like. Our philosophy remains unchanged: invest in good quality shares that generate regular dividends, be wary of the daily market news and avoid unnecessary trading. Although simple this has a strong history of generating strong returns.
On 4th June the Reserve Bank of Australia lowered official interest rates from 1.5% to 1.25%. This was the first change since August 2016. The RBA clearly believes economic growth needs a boost and further reductions have been forecast. A key issues remains whether banks pass on these cuts. In the last round we saw from the big four NAB and CBA pass on the full cut, and ANZ and Westpac only part. The banks attempt to justify not passing on the cuts for two main reasons: the first is banks source an increasingly large proportion of their funds from the US, where interest rates have been rising. Second, they also need to consider the needs of depositors, who rely on cash and term deposit accounts to provide income.
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