Securinvest Financial Planners

AMP - Olivers Insights

Key points

• Shares and other listed growth assets have hit an air pocket in the last two weeks – with most share markets having fallen around 5 to 7%.

• It is too early to say that the pull-back is over and we doubt the cyclical bull market in shares and other listed growth assets that started in March is over.

• However, it is likely that shares are transitioning from a price to earnings (PE) driven rally to one which is dependent on earnings growth. This could lead to more constrained returns going forward.

Attachments:

olivers-insights_Is-the-cyclical-recovery-in-shares-over_05-11-2009.pdf

[Read the full article here]

567 Kb

When the stock market has rebounded as strongly as it has since March, an obvious question arises—have shares moved too far, too fast?

It’s a simple question but a very complicated one to answer. Firstly, because share prices and the economy (whilst related), do not move in synch with each other— the market makes a judgement today about what the economy will be doing tomorrow. Secondly, measuring what’s actually going on in the economy is not as easy as it looks. The indicators that economists use are a mix of forward-looking and backward-looking measures, they lead and lag. At times like these, when the economy is apparently on the cusp of recovery, the messages can be confusingly mixed.

Once again, it is fantastic to see the rebound in both global and Australian equities continuing. Confidence continues to improve across a number of fronts and the colour is starting to return to everyone’s cheeks!

Economy

Following on from what had been a disastrous 18 months and as we have touched on earlier in this newsletter, the economic recovery signals continue to be positive in Australia with building approvals, housing finance and business confidence all on the way up. With a resilient job market, unemployment remains stable and looks like staying well below the original forecasts as we entered into the GFC.

Perpetual's Australian Equities Market snapshot – June 2009

• The S&P/ASX 300 Accumulation Index rebounded 11.5%. This was the first quarterly rise since September 2007 and the largest quarterly rise since June 2001.
• The S&P/ASX 300 Industrials Accumulation Index rebounded 11.6%. This was the first quarterly rise since September 2007 and the largest quarterly rise since December 2004.
• The S&P/ASX Small Ordinaries Accumulation Index rebounded 26.7%. This was the first quarterly rise since June 2007 and the largest quarterly rise since the index started in 1992.