That market prices indicate economic performance is constantly rteaffirmed. In recent share and bond market movements – whenever we watch, the economic performance soon follows. Watch the move in market prices for a particular sector. You will find that economic performance for that sector will most likely take that path within 5 to 9 months.
Commencing in early March 2009, following the GFC, US and Australian equity markets rose by more than 50% that year. A significant portion of this growth was because of a massive over-sell taking prices unreasonably low. Clear signs that the economy was improving – both in the US and in Australia – had started to appear.
In Australia this improvement has been reflected in the decision by the Reserve Bank to increase official interest rates from the beginning of this month. We were the first Western economy to take this action. Commentary around it suggests that growing economies in Asia are leading to an improvement in the profitability of Australian enterprises. Those that are engaged in trade with China and other Asian economies particularly benefited.
Improvement in the US economy appeared to be driven mainly by government fiscal stimulus. This resulted in –
- a reduction in the rate of Unemployment,
- an increase in manufacturing activity (to some extent, replacing diminished inventories),
- some increased business and home lending activity, and
- an anticipated third quarter of reporting season ‘surprises to the upside’.
Market prices indicate economic performance, so…
There is an expectation that the current rally might falter some time soon. If that does transpire, we expect the ‘correction’ to be of the order of ten to fifteen percent – which would leave the ASX All Ords up by still around 30% off the March lows. Sources we have read and heard suggest that if such a correction occurs it will trigger a further rally that will run for several months.
Continuum Financial Planners is monitoring the comments around these prospects and will guide clients through the phase as best suits their situation at the relevant time.
Clients will be familiar with the fact that we encourage formulating an investment strategy, reviewing that regularly – and sticking to the strategy whilst ever your personal circumstances prevail, regardless of the short-term vagaries of the equities markets. Most of us are invested for at least the medium-term (four- to five-years) or the longer-term and so the short-term movements of the market should be analysed to determine what they are saying about the potential in the economy. Short-term ‘shock’ variances should be discounted when reviewing longer-term investment strategies.
To arrange a meeting with one of the advisers at Continuum Financial Planners Pty Ltd for a review of your investment strategy and/ or portfolio –
- please phone our office, on 07-3421 3456, or
- at your convenience, use the linked Book A Meeting facility.
(This article was originally posted by us in October 2009. It has occasionally been updated/ refreshed, most recently during April 2025.)
