This is our weekly market update. After recent wobbles on concerns of higher rates for longer, the Bulls have been stomping through the markets this week. Data dependency is a marvellous thing because each shiny new data point has the potential to swing the market violently. Some might well be detecting signs of weakness below the surface, suggesting further reversals ahead.
The blue-chip Dow Jones Industrial Average passed the 40,000 level for the first time ever earlier in the week, and record highs have also been seen by major indices in Europe and Asia as investors took advantage of expectations of lower interest rates globally. These markets have remained relatively resilient even as U.S. macro data have shown signs of softening, with the PMI and ISM surveys declining in April, labour-market data worsening, consumer confidence dropping and the housing market deteriorating again.
The bulls of the ASX are running again this week in a classic “bad news is good news” rally. Lingering concerns that sticky inflation could force the Federal Reserve or the Reserve Bank to raise rates have suddenly been extinguished. For all that worry about higher-for-longer rates exposing cracks in the local economy – the weakening consumer spending we’re seeing, the rising corporate insolvencies, weakening consumer and business sentiment – the ASX 200 has quietly added 4 per cent within two weeks, and is now up 3.3 per cent this year. Since October 2022, it has gained 22 per cent.
Never mind that valuations look stretched and equity risk premiums on both sides of the Pacific (the difference between the equity market’s earnings yield and the 10-year bond yields) are almost non-existent. Local investors continue to plough into their market darlings in the firm belief that rate cuts are coming.
The latest edition of our finance and property news digest with a distinctively Australian flavour.
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