During the first quarter of 2019 there was a lot of talk about market woes and possible crashes around the world, yet it has ended with the All Ordinaries Index rising around 10%.
Given the strong start to 2019, many are questioning if the Australian market now has enough steam to create a new all-time high or will the doomsayer’s predictions of a crash ring true? In my opinion, a new all-time high on our market is not too far away.
The current all-time high is 6873.2 set on November 1, 2007, and the All Ordinaries Index is currently around 9% below this level trading around 6300 points. As I have mentioned previously, for the market to continue to move up and make a new all-time high, we need to see both the Financials and Materials sector move up together.
These two sectors make up 48.2% of the top 200 (XJO) weighting on our market, so a positive movement here will take the market with it. This year the Materials sector has risen 18%, Information Technology is up 23% and Energy is up 14%, while the Financials sector has been lagging, rising around 4% for the year.
What is likely to drive the Financials sector this year is an interest rate cut, as this will make the cost of funding cheaper and easing of the lending criteria for houses. Both will ultimately increase the profit margins for the banks. As for Resources, the outlook remains positive with better commodity prices and a weaker dollar likely to drive the miners.
My expectations are that the All Ordinaries Index will rise to form a new all-time high sometime near the end of the second quarter or in the third quarter of this year.
That said, the next couple of weeks will be crucial in determining how early or late this occurs. If the market continues to rise from here it will occur around mid-year and if we get a short-term pullback in the next month, the new high will occur in the third quarter.
Looking at the sectors this week, Energy is the top performer up 2.9% followed by Information Technology up around 2%. Financials on the other hand, where slightly in the red with Consumer staples and Utilities not far behind.
Of the top 200 stocks, Crown Resorts jumped 22% to a high of $14.37 on Wednesday with news of a possible takeover by Wynn but fell on Thursday after the Wynn backed out. Seven West Media shares rose on the back of news that it finalised the sale of its 50% stake in Yahoo7 on Thursday for $20.6 million to Verizon Media. Crown ended up around 12% while Seven West rose around 10%.
The losers for this week were Sims Metal Management, which was down around 14%, while Syrah Resources down 11% and Domain Holdings down over 9%.
What to expect from the market
As I mentioned earlier, the next few weeks will determine how the market will unfold over the next six months.
If the market pulls back away over the next four weeks into a low by mid-May, we will see it rise from there until mid to late September to a new all-time high.
If it rises over the next four weeks, the next low will occur in late June, which means a new all-time high is likely to occur early to late September before moving into a low later in the year.