Australian Stock Market Could Fall Up to 8%

In the latest news the Australian stock market is showing signs it could fall up to 8 per cent in the coming weeks. The RBA is also due to meet this week although it is unlikely that we will see interest rates fall.

The RBA has cut interest rates three times throughout 2019 including June, July and October, and they are due to meet again on Melbourne Cup Day to decide whether a fourth rate cut is necessary to stimulate the economy.

Interest rates unlikely to fall

The US just cut interest rates, resulting in the Australian dollar rising against the US dollar, which will play into the RBA’s decision among other factors including the inflation rate and employment figures. The aim is for inflation to sit between 2 and 3 per cent, yet it has currently sat around 1.7 per cent for the twelve months to September 2019. While inflation increased 0.05 per cent in the September quarter, the rise has been very slow over the past few months as the economy is essentially flat.

To stimulate the economy the US needs to finalise a deal with China and while things are very positive on that front, anything can happen. Looking at Asia as a whole, GDP has been growing at a steady rate, which is set to continue in 2020. For many countries the outlook is good, with India topping the list having a predicted GDP growth for 2020 of 7.6 per cent, the Philippians 6.6 per cent, Vietnam 6.5 per cent and China 6.2 per cent, which is only slightly lower than 2019 at 6.3 per cent.

Australia is well positioned to take advantage of the growth throughout Asia, and, therefore, is likely to see GDP growth of between 2 to 3 per cent in the coming year. Given that the RBA will be considering these factors, a rate cut now or anytime between now and Christmas, while possible, is unlikely.

When looking at how the Australian stock market has unfolded in recent months, you would have to think that I am not alone in this assumption given that the market has really only traded sideways, rising just 0.4 per cent in the first four months of this financial year. This indicates that the broader market is more bullish rather than bearish.

Top and bottom performing sectors and stocks

Looking at the sectors last week, Information Technology has been the worst performer in October as it is down 3.95 per cent although it was slightly positive last week. Industrials has also only just managed to be in positive territory for the week although it has done well in October ending the month up 2.97 per cent.

The worst sectors were Financials, Consumer Discretionary and Communication Services, which are all currently down for the week over 1.5 per cent. All three of these sectors performed poorly during October with both the Financials and Communication Services ending the month in the red. Healthcare, on the other hand, had a stellar run in October ending the month up 7.58 per cent.

The top performing stocks in the S&P 100 last week were Iluka up over 7 per cent, Blue Scope Steel and Lend lease, which are both up over 3 per cent. At the other end of the scale, GPT was down nearly 6 per cent, while Magellan and ANZ were down over 4 per cent.

What’s next for the Australian stock market?

The All Ordinaries Index has defied logic by holding up rather than falling away into the yearly low although last week it was starting to show signs that it was looking weaker given that it closed lower for only the third time in the past twelve weeks.

Consequently, it now looks like we will see the All Ordinaries trade down to my target level of between 6400 and 6200 points over the coming few weeks with the low likely to occur by the end of the second week of November after which we will see the market turn to rise up into 2020.

Let’s get into this week’s stocks of interest. Watch the video to find out more.

Good luck and good trading!

Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.