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Richard A. Cox
Richard A. Cox
Articles (66) 

Australian Markets: Summer Stock Rallies Ahead in ASX 200?

As Australia's bull market continues, analysts expect funds to continue with steady growth in the coming months

July 02, 2018 | About:

Stock investors are trading in limbo, as there are still big questions with respect to where the dominant trends will be headed into the final portions of this year.

All told, 2017 was a good year for the S&P 500 (SPY) and this has helped to translation to bullish sentiment and positive gains in Australia's most important ETFs. Specifically, the SPY ETF saw overall growth of 17% in its valuations last year.

In November 2017, it was ranked No. 1 among 136 exchange-traded funds in the large-cap industry, as its base index grew by 7% to reach an all-time high of $286.58 on Jan. 2. Bullish trends like these should support global stock ETFs, and lead to an improved investor outlook for Australia's ASX 200.

But the first half of 2018 was met by sharp upturns and downfalls, unlike 2017 (which was a growth curve). The index fell by 10% in the period between Jan. 26 and Feb. 8, reaching back to the figures of November 2017 and entering into correction territory.

The "flash crash" activity in February 2018 was largely caused by the trade war between the U.S. and China and other political factors. Since the index mimics the S&P 500, the trends in both indices were similar during these weeks.

In late February, the stocks went in correction mode and rose by 8%, reaching $278 on March 12. At the end of the second trading week of February, the index recovered 50% of its losses, thus leading to concerns about whether this swing after a plunge was a sign of good health or an indicator of weakness. But the stage was now set for the S&P 500 and other stocks to reach all-time highs.

Why can we expect a stock market rally in the coming months?

The main reason for the correction in March was the positive economic conditions seen broadly. The trade war fears seemed to have subsided, and technology and small caps were performing well.

The S&P 500 SPY is set to increase in the coming months. Since the index provides investors with exposure to the stocks in the S&P 500, growth can be predicted accordingly. Apart from this, the U.S. GDP stands tall at 2.2% and is projected to be 2.9% in the second quarter.

Since February the S&P 500 has made lows in its journey and these moves have been matched largely by Australia's ASX 200. Each downturn was lower in volume than the preceding one, and we can see visible W-shaped curves in the price history graphs.

This denotes that the index is gaining momentum, and investors can expect the market to come out of a long consolidation period. The technical image, for now, looks positive, and the index is set to grow higher during this year with appreciation in stocks overall.

Individual stocks have had periods of downside, however, but rebounded back in the coming weeks by 4% after National Bank of Australia (ASX: NAB) posted an increase of 3% in the first quarter profits. Following NAB was AMP Limited which posted an increase of 24% in its revenue, while Mirvac Group and AGL Energy both posting an increase of 8% and 7% in its half-year revenue.

Australia stock performance numbers

In March 2018, the most accurate stock market analysis shows that ASX 200 dropped another 5% (February 27 – March 29). Some analysts ascribed these trends to the US-China trade war, among other things. This heavily impacted the Wall Street and spiraled across Asia leading to a fall in the ASX 200 and All Ordinaries, with Banks and the Miners taking the biggest hit in this debacle. However, the market gained momentum in April helped by the rising commodity prices and positive growth in the Energy (+10.7%) and Materials (+7.4%) sector.

As the bull market continues, we can expect regional funds to continue their steady growth in the coming months. In the month of May, investors in the index received a return of 2.43% and with the current positive trends, they can be confident in their holdings for 2018.

Disclosure: The author has no position in any asset mentioned.

About the author:

Richard A. Cox
Richard A. Cox is a syndicated financial writer.

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