Will the Australian Stock Market Crash in 2019?
By Dale Gillham |
Over the past month, the Australian stock market has come within striking distance of the all-time high but at the time of writing this report, it has so far failed to break through. It has now been 140 months since the All Ordinaries Index made its all-time high, and a failure to push through this previous level has left many wondering whether there is cause for concern and an indication of things to come?
Alarmists are, once again, ringing the bell by suggesting the Australian stock market will crash in 2019 with a meltdown of 25 per cent or more, and some are even predicting a GFC style crash. This thinking is interesting given that the All Ordinaries Index has never crashed before making a new all-time high, and it has never crashed within a short period after making a new all time high. So, a crash anytime soon would be making history.
This year the Australian stock market has been extremely bullish, climbing steadily towards the all-time high by rising 19 per cent, with conditions certainly being optimal for investors to make good, safe profits.
Why hasn’t the All Ords broken through the all-time high?
Because people still have solid memories and many are still feeling the pain of the GFC. Therefore, as the All Ordinaries Index climbs closer toward the pivotal all-time high, fear and hesitation begin to rise, which causes resistance to price moving strongly through its highest point. In other words, the masses are sitting back with a wait and see what happens mindset.
This occurs for two reasons, the first is because no one wants to buy at the top of the market and, secondly because speculators are trying to pick the top, which is causing them to exit their positions out of fear of losing profits. With the decrease in buying and the increased selling, the market had slowed and may stall for a period of time.
This same situation occurs when a stock is trading around its all-time low, where people perceive it to be cheap and, as such, attempt to pick the bottom only to get it wrong most of the time. People have a general misconception that when the market is trading around an all-time high that it is expensive, overheated or overpriced, which is not necessarily the case.
This misconception is one of the biggest pitfalls anyone can fall into, and a factor that can and often does have a negative impact on portfolio returns. This false belief causes investors to exit good positions and miss out on safe opportunities to make a profit.
If a company is performing well and reporting record profits, it makes sense that the stock price would be rising or trading around its highest point. It also makes sense that it would continue to rise if it is creating extra value in increased profits. It’s important to remember what Buffet himself said “price is what you pay, value is what you get”. So, are there stocks in the All Ordinaries Index that are good value? Absolutely.
This week’s top and bottom performers
So what happened in the market last week?
Looking at the Australian share market sectors, Consumer Staples was the top performer up over 2 per cent followed by Consumer Discretionary up over 1.5 per cent. The bottom performers were Utilities down around 2 per cent followed by Financials down over 1 per cent. Materials was also down this week and, when you combine this with the Financials sector, it explains why the All Ordinaries Index is slow right now.
As for the top performing stocks in the ASX 100 last week, A2 Milk rose over 10 per cent after receiving a ratings upgrade from analysts while Treasury Wine Estates was up strongly rising over 6 per cent and JB Hi-Fi was up nearly 5 per cent, which is a very good sign for this stock. The worst performing stocks this week include Amcor down over 6 per cent, Incitec Pivot down over 5 per cent and ALS and Downer EDI down over 4 per cent.
Are the alarmists right and will the Australian stock market crash in 2019?
Absolutely not – you can rest assured we are not heading towards a market crash. Yes the market is searching for a high and in the not too distant future it will fall away, which is quite normal for our market. I expect that the new all-time high will be around 7200 points and for the market to fall into a low in September or October 2019. I also expect that the fall will only be around 10 to 15 per cent from the high, which is definitely not a crash. Long term the market is bullish.
So 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.