In the latest Morgans Market Volatility Update, William Douglas and the team at Morgans provide a detailed summary of the current market situation and their strategy for the future.
What's happened?
Why the Savage Selloff?
The headlines referred to a poor US employment number, raising fears of recession. Morgans explores this in detail:
US Payrolls increased employment by 114,000 (this was a bit below expectations).
Markets collapsed at this point.
The US employment growth rate from 2021 to 2024 is well above the 20-year average (it is very hard to cut interest rates in this circumstance).
114,000 is 1.6% growth, the average growth rate for this century.
It simply represents a moderate number. It can't by itself be considered indicative of a recession!
Morgans expects employment growth numbers to fall below average from now on (precisely what the US FED is trying to achieve to begin a rate-cutting cycle).
Morgans has more reliable measures of US economic growth vs recession… e.g. Chicago FED – indicates the US economy is growing at trend (2 – 2.2%).
Atlanta FED estimates US growth at 2.5%.
Morgans notes there are no data indicators of a US recession at this point!!! Morgans recognises economic growth will slow in the US and China.
Morgans Market Observations – US Recession Fears Overblown
Weaker data would likely accelerate interest rate cuts around the World. Large falls are typical of markets:
Recent falls resemble 'risk off' positioning that may still have a way to go.
From 1980 to now, investment markets have fallen 10 – 20% on average every 18 months.
It is somewhat unusual that we haven't witnessed a fall like this from April to June 2022 (the ASX 200 had a 15% fall to a level of 6,422 vs. 7,675 today).
Recent weak US data timed with the unwinding of a Japanese equity bias saw equity markets extend steep declines to cap their worst three-day performance since 2022.
Markets are concerned that the Federal Reserve may move too slowly to cut interest rates to avoid a recession.
The Sahm Rule Recession Indicator says the start of a recession occurs when the US national unemployment rate rises by +0.5% or more relative to the average from the previous 12 months—and which has just been triggered.
Notwithstanding the weaker data, the degree to which the data has been below expectations has been relatively minor. Some slowing in economic activity should be expected for interest rate cuts.
Morgans Investment Strategy
Once the 'risk off' volatility has passed, Morgans see rate cuts fuelling share market gains in 2025/2026
Price falls = opportunity
Corporate balance sheets and company earnings remain strong.
Expect Morgans to review your investment positioning, considering selling down outperformed investments and picking up those that have been unduly 'beaten up' in the panic.
Note, meanwhile, your income hasn't changed.
Our June Investment Strategy remains valid – stay up to date!
Internationally, we moved exposure from Europe to the US (better supported by rate cuts and Government deficits). We are happy with the value in Japan.
Larger rate cuts are good for listed property so that we will build positions there.
Our fixed interest strategies continue to build fixed-rate components. Ultimately, we
will switch from Bonds to other opportunities when the advantage is maximised.
We will continue repositioning for the 2025/2026 rate-cut beneficiaries in Australian equities.
Comentários