Job Keeper to End: Will the Stock Market Fall?

According to recent figures from the Australian Bureau of Statistics, the number of employed Australians fell in February to 5.80 per cent or 0.5 per cent lower than it was in January. This figure is positive news, as it comes on the back of two consecutive quarters of GDP growth suggesting the economy is not only moving in the right direction but quicker than expected.

Australian economy is recovering post COVID-19

In February 2020, Australia was breaking records for the longest sustained economic growth without a recession with the seasonally adjusted unemployment rate at 5.10 per cent, which means we are edging closer to pre COVID-19 levels for employment growth. That said, there might be some skeletons in the closet given that the true number of unemployed is unknown, as Job Keeper has cushioned this although the expectation is that when this scheme ends at the end of the month job losses will increase.

The biggest losers have been tourism and hospitality and while these areas have recovered somewhat, it is far from pre-COVID levels and it is not likely to improve in the near future while international tourism is on hold. Another area of the economy that is suffering significantly is the loss of nearly $40 billion per annum from international students, which has dramatically affected Universities, TAFEs and private education companies. Current estimates indicate that international students will continue to fall and enrolments are unlikely to a show positive change until the 2023 intake.

Tourism and education are both large employers and sources of money flow into Australia, and with Job Keeper being wound up this month we may see many job losses in both areas. While I expect our economy to continue growing, until these two areas turn the corner and start the long road back to pre-COVID levels, I believe our economic growth will be subdued.

What were the best and worst performing sectors last week?

Once again, the All-Ordinaries Index is displaying no real signs of any real direction in 2021 with the market up less than 2 per cent for the year. Last week, Utilities was the best performer up 2.15 per cent while Communication Services was up 1.84 per cent and Healthcare up 1.26 per cent. The worst performing sectors included Materials down 3.98 per cent followed by Energy down 2.55 per cent and Industrials down 2.18 per cent.

The best performers in the ASX/S&P top 100 stocks included Link Administration up 9.26 per cent followed by Ansell up 8.52 per cent and Charter Hall up 8.40 per cent. The worst performers included RIO down 6.51 per cent followed by BHP down 6.40 per cent, Fortescue down 5.88 per cent and Orora Limited down 5.10 per cent

What's next for the Australian share market?

While the All-Ordinaries Index has been flat during the first quarter of 2021 there are two indices that have been doing very well: the Emerging Companies Index, which is up over 25 per cent and the MidCap 50 index, which is up over 14 per cent. When these two sectors move strongly, it indicates that retail investors are speculating in ever increasing numbers, which is typically a sign that the end of a bull-run or bubble is close. While I don’t expect our market to crash, this is a strong sign that the All Ordinaries Index is due to pullback.

Until the market confirms it is moving up, I will continue to assume that there is higher probability of it falling into a low. As mentioned previously, the market will break out of this current sideways pattern very soon, and I believe the move will be down. Last week the All Ordinaries Index closed down almost 1 per cent, and while this is not significant, it is the fourth week over the last six weeks that the index has closed lower, which indicates that both price and time are somewhat bearish in nature.

Since the last high on 17 February, the index has fallen over 3 per cent and I believe it is set to fall further over the coming weeks. Given this, we need to be prepared for it to fall into mid-April and for the market to trade down below 6,500 points. As I have stated previously, now is not the time to be entering the market, as investors would be better off waiting for the next confirmed run up.

For now, 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.