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Mid-Year Investment Forecast Report

Peter Warnes  |  05 Jul 2018Text size  Decrease  Increase  |  
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In Forecast 2018 of 14 December 2017, I wrote “Without forecasting closing year index levels, I believe the US and Australian equity markets will close 2018 at a lower level than the exit level of 2017. The magnitude and cause of a market correction is difficult to predict. Investors are currently oblivious to an exogenous factor but there is abundant fertile ground in which one can sprout.”

This was a brave (or stupid) call at the time, as global markets, led by the US were on the tear. By 26 January, all three major US indices were at all-time highs, the Dow Jones was up 7.7%, S&P 500 7.5% and Nasdaq Composite 8.7%. This, on top of a very strong Trump-bump performance in 2017. But when US wages growth spiked to 2.9% annualised in January and bond yields surged, markets corrected as investors feared a possible inflation breakout.

The markets recovered some of the lost ground and remained nicely positive for the year until President Trump shook global trade relationships to their foundations by introducing tariffs on steel and aluminium products of 25% and 10% respectively. A possible exogenous factor had emerged.

Australia’s S&P ASX 200 index is up 2.1% for the half year to 30 June, after a stellar May and June added 3.9%, pulling the index from negative territory in the first four months. Including dividends, the Accumulation index is up 4.3%. For the 2018 financial year the market performance slowed noticeably in the second half. The Hayne Royal Commission impacted the heavily weighted banking sector. S&P/ASX 200 is up 8.3% (+6.0% 1H/+2.1% 2H) and the Accumulation index 13% higher (+8.4% 1H/+4.3% 2H).

 

Peter Warnes is Morningstar's head of equities research. Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

© 2018 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf.  You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

is Morningstar's head of equities research.

Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

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