Cranage News
For those of you who enjoy your sport, I hope you’ve been relishing the Olympics. Amid the headlines about our athlete’s great achievements, the current market volatility is also getting some traction. To address this, we’d like to share our perspectives in a manner that is helpful and relates to your circumstances.
Our newsletter is being rightly reshaped this quarter to communicate what’s on the minds of our clients.
Share Markets: A News Filter for You
No doubt headlines about large market falls make people anxious. In fact, news outlets often glorify what is happening and ignore the broader perspective. Let’s start with a roundup of recent financial developments, filtered for you:
Australia
The RBA met this week, with rates remaining on hold at 4.35%, as recent inflation results have come in as expected. The unemployment rate is one of the key indicators to monitor.
Recent ASX volatility is providing some market jitters with investors becoming more cautious about the economy as fears of recessions start to build.
The August ASX reporting period will provide plenty of insight and direction for the second half of 2024.
UK and Europe
The Bank of England cut rates on 1st August by 0.25%, the first rate cut since 2020. This follows the European Central Bank.
Keir Starmer is yet to announce any concrete proposals on taxes or pensions, but we expect them.
Local markets have held up reasonably well, with rate cuts generally cheered by investors. Local bonds are also holding up and offering diversification benefits.
US
In a busy period, the Federal Reserve is very likely to cut rates in September, especially given recent evidence of a weak jobs market.
The US election is also twisting, with Kamala Harris hitting the lead in recent polling.
Finally, US tech companies are experiencing a correction after running hot earlier this year. Again, bonds are providing a ballast.
Asia
Japan is making headlines, with the Bank of Japan rising interest rates unexpectedly. This has triggered the Japanese yen to rise quickly and Japanese stocks to fall, unwinding recent moves the other way.
Other emerging markets, including China, have had a bit of a challenging run but are holding up better amid the volatility.
On face value, it appears that bigger up and down days in markets (or vice versa) are upon us. However, this is not a sign of a broken market—it is very typical of what happens when investors are trying to digest new information quickly. It won’t last forever and won’t get in the way of us achieving your financial aspirations.
It is also worth noting the nature of setbacks. They are often a reversal of what has already run a little hot. For example, the Nasdaq in the US (an index of technology companies) has fallen by 10% since 9th July but is still up 13% this year. We can see a similar pattern across the globe.
Markets Never Move in Straight Lines 
One key aspect we’d like to highlight is the benefit of diversification which helps your investments do well in a range of scenarios. With equities facing a patch of recent volatility, bonds have offered a ballast. This is by design. The economy and markets can change path, sometimes quickly and unexpectantly, which is exactly why we invest across a range of opportunities that complement each other. Our aim is to pursue a steady path that seeks to maximise returns without taking excessive or unwanted risk.
Changes That Can Benefit You
Turning to actions, this could become a great opportunity to add value in the pursuit of your financial desires. To do that, you will hopefully find the below helpful:
- Don’t try to pick the exact bottom of any market correction – and don’t expect us to either. Markets don’t work this way. As Peter Lynch famously said, “Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections themselves”. From all our analysis and knowledge, the best approach is to stay the course and invest consistently. The key is to understand probabilities and keep your money at work over long time horizons Morningstar’s philosophy of “investing for the long-term” helps clients ride out market ups and downs over multiple market cycles.
- Consider interest rates. The RBA has remained in its holding pattern since November 2023, keeping the cash rate at 4.35%. While we’re seeing inflation coming down, the question still remains: is the trajectory steep enough? Australia’s unemployment rate is a pivotal piece of the puzzle, especially if inflation remains stubbornly persistent.
- Stay focused on your goals. We have a financial plan in place to help you achieve what is important to you. If you’d like us to review your projections and planning, please get in touch. This will help you to stick to the plan – and please remember that changes in markets are part of the journey to achieving those goals.
- See the positives in this. I’d like to end by sharing a Warren Buffett quote that I love whenever the market wobbles: “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons”. The key here is that volatility creates opportunity, and when valuations further highlight such opportunities, Morningstar is taking advantage of this within our portfolios. Above all else, we are with you on this journey.
RBA holds steady as we head into Spring
A message from our Senior Lending Consultant, Jerome Mendis, following RBA's August announcement;
"While lending for the past 3 to 4 months (on average) has been relatively stagnant, we’re certainly experiencing an uptick in activity which aligns a lot closer to the RBA’s predictions, than that of AMP. From my experience, when it comes to Australian’s and property, we don’t enjoy sitting on the side-lines for very long. Factoring that in, along with the combination of the most recent RBA announcement and the usual activity spike that accompanies Spring, I think there’s plenty of reasons to be optimistic that we will have a much stronger second half of the year.”
We remain committed to keeping you informed, and supported, throughout all stages of your financial journey. Keep the vision, trust the process.
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