Wealth Within chief analyst Dale Gilham said there is a lot of discussion among investors at the moment about why the Australian stock market has been so bullish in recent months and if it will continue to rise next year.
“There are a range of different factors that contribute to the direction of the market and for the most part it reflects our confidence in business and the economy,” said Mr Gilham.
“If confidence is high or increasing the stock market will rise, which creates momentum. How fast or slow the momentum is will be determined by economic factors. The most recent of these being the election outcome and the subsequent RBA rate cut.”
With the cash rate sitting below inflation, and the returns on cash investments dropping, this is likely to push investors away from cash investments in favour of stocks to achieve a higher return, he explained.
“This influx into shares has seen the market continue to rise, particularly the banks and many other stocks in the top 20. Last week’s strong move up on the All Ordinaries Index, has been eclipsed this week with the market gaining another 2 per cent,” he said.
“Financials were up over 2 per cent. Given that eight of the top 20 stocks are in this sector, and the top 20 makes up nearly half of the market capitalisation of the All Ordinaries Index, it’s no wonder the Australian stock market as a whole is up. Information technology and utilities were the other big movers, increasing 4 per cent.”
Mr Gilham said the All Ordinaries Index has risen over 22 per cent since the December 2018 low, and may climb to an all-time high very soon, potentially before the end of this month.
“The stock market has risen around 4 per cent this month alone, which is significant considering that June is historically one of the worst performing months of the year,” he said.
“Given that the RBA is indicating it may cut the interest rate again this year, and possibly on more than one occasion, you would have to think the transition from cash investments to shares will only increase and support the current rise.
The market is currently bullish, he said, and will likely remain bullish in the medium term, reaching between 6900 to 7400 points.
“In the short term, I believe the ASX 200 will rise over the next two weeks breaking through the all-time high before falling away for one to two weeks into mid to late July,” he predicted.
