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11 August 2023

Market Update – July 2023

The new financial year has kicked off with another strong month for equity markets. The ASX200 rallied +2.9%, along with international equities +2.3% and bonds +0.4%.

Of note is the rally in small caps and cyclical stocks globally, suggesting investors are getting incrementally more bullish on the global economy.

Our view remains cautious in the short term, and more optimistic in the long term. We are still yet to see the full impact of a sharp rate rising cycle on the real economy or on corporate earnings, in our view. Of particular importance is the resilience of the equity market once the labour market starts to deteriorate.

Reporting season will provide a particular acid test for local shares, as the economy continues to digest higher inflation and transitions from the pandemic into a higher interest rate environment. Of particular interest is the bank updates, their outlook, and trading updates and guidance from the more economically sensitive parts of the index. These should provide a good indicator of what is happening in the real economy, and of what the path is likely to entail.

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