Will the All Ordinaries Index Continue to Fall?

Over the past year there has been a lot of talk around rising inflation and interest rates, and how the RBA will handle the economy. Following the eighth straight interest rate rise last week, the talk around mortgage stress has also increased and while I would like to be the bearer of some good news, unfortunately that is not going to happen, as I believe more rate rises are coming.

How can households manage rising interest rates?

While interest rates have been rising to levels we haven’t seen in over a decade, they are returning to historically normal levels. Despite the fact that it makes sense to plan for such events if you have a mortgage, unfortunately the average household spends the majority of what they earn rather than planning for the future. This explains why a large percentage of Australians cannot survive without an income for more than a few months. So, how can households break this cycle?

1. Never borrow the maximum of what a lender will lend, always leave a safety buffer.

2. When buying a home, never borrow more than 80 per cent.

3. When using a credit card or buy now pay later facility only use it if you can pay it off the next month.

4. Always categorise your spending into three key areas: what is essential (for bills, the mortgage, etc.) to maintain your lifestyle, what is important but not critical if you didn’t have        it and spending on lifestyle choices, which you can do without.

There is an old saying from US footballer Jim Rice that states ‘I will do today what others won’t, so tomorrow I can do what others can’t.’ Before this year ends, take the time to sit down and plan, and then put it into action, so that by this time next year, you will be in a much better position.

What were the best and worst performing sectors last week?

The best performing sectors included Materials up 1.87 per cent followed by Consumer Staples up 0.02 per cent and Consumer Discretionary down 1.77 per cent. The worst performing sectors included Information Technology down 4.74 per cent followed by Energy down 3.31 per cent and Financials down 2.57 per cent.

The best performing stocks include Fortescue Metals up 8.69 per cent followed by Orica up 6.56 per cent and Rio Tinto up 4.66 per cent. The worst performing stocks included Downer EDI down 25.55 per cent followed by Allkem down 8.96 per cent and Pilbara Minerals down 8.02 per cent.

What's next for the Australian stock market?

The All Ordinaries index has finally moved down for the first time in over eight weeks. It fell to a low last Thursday of 7,362 points, which is below the previous major high set back in August of 7,386 points, ending the week down just 1.29 per cent.

While investors may be concerned about the Australian stock market and the economy in 2023, I don’t believe they need to be overly worried. While it is possible the economy could fall into a recession, I believe the All Ordinaries Index will perform better next year than it did this year.

The current move down is a normal part of market cycles and, as I have mentioned previously, there is strong support between 7,000 and 7,200 points or roughly 2 to 5 per cent from where it is currently trading. If the market does fall a little further than those levels, I don’t believe it will be by much.

Right now, I urge investors to treat the current fall as an exciting opportunity to buy good stocks at cheaper prices rather than with concern or fear, as I believe you will be well rewarded when the time comes to buy.

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 bestselling and award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online.