June 2023 Market Update
It has been a tricky period for the global economy, marked by elevated global inflation, another US bank failure in May and protracted debt ceiling negotiations within the US government. Closer to home, we’ve had ongoing rate rises from the RBA, and somewhat paradoxically, a rebound in Australian house prices. The latter issue causing ongoing concern for Australia’s central bank as it continues to try to tame the inflation genie.
Despite these issues, US equities have rallied over the past few months, spurred on by optimism on the resolution of the US debt ceiling standoff, as well as excitement over developments in artificial intelligence. We are viewing the rally in US equities somewhat cautiously however, with valuations looking a little stretched in the context of current interest rates. The recent US rally has also been quite centered on large cap tech stocks, rather than broad based. On the outlook for inflation, US inflation appears to be subsiding, whilst in Australia, structural inflation remains a little more stubborn. This is forcing the RBA to raise rates more aggressively, to stamp out the residential housing rebound on the east coast. The goal being to avoid greater longer-term economic pain down the track. This means the chances of a domestic recession have increased somewhat in the shorter term. Mid to longer term however, we remain confident that the Australian economy can navigate these challenges, and we remain poised to take advantages of opportunities in portfolios as they arise.
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