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The economy is well positioned to come out of COVID-19

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This year has been one most of us would like to forget and while some of us have suffered from fires, floods and droughts, all of us have had to endure COVID-19. I am sure many will agree, that being in an environment where our state and federal governments have had to make some quick but tough decisions that affect the way we live has been challenging, there has been some positives.

Given that we are not going out as much as we otherwise would, one of the benefits of these restrictions is that we are not spending as we normally would, consequently, many Australians have excess cash in their bank accounts.

While the government has been handing out money to ensure we can survive the pandemic and, in the hope, we all keep spending to stimulate the economy, the reality is that many Australians are using the current situation to reduce their personal debt, especially their credit card debit or to save money.

asx top performing shares

According to research on Finder.com.au, over 70% or 14 million Australians own a credit card and according to the statistics, the average balance equates to $2,889. In an interesting statistic, almost half of all Australians over 55 have two or more credit cards and almost 18 percent have three or more cards.

Those aged over 35 are not far behind with over 40% owning two or more cards while 20% own three or more cards. This probably explains the scary statistic that as a nation we spend over $25 billion each month on these cards.

Looking at another survey published by Finder.com.au, Australian household debt more than doubled between 1995 and 2015, as our ratio of household spending to income rose from 104% to 212%, meaning Australia has one of the highest household debt levels in the world. While this has come down in recent times, you have to agree these statistics are scary.

The good news is that the Australian economy is well positioned to come out of the current COVID-19 situation in a better position than nearly any other country in the world. On an individual front, all we can do is what we can control to ensure we come out the other side better and more prepared.

Therefore, I believe it is wise to pay down debt and preserve cash, as this will ensure you can take full advantage of a better economy and the opportunities that will come from this in the future.

Best and worst performing sectors this week

Once again, the All Ordinaries Index has only been slightly bullish and far from convincing with some sectors rising strongly while others have fallen heavily.  Healthcare experienced a strong rise up over 5%, followed by Information Technology and Consumer Discretionary, which are both up over 4% and 3% respectively.

The worst performing sectors include Energy, which is currently down almost 4% followed by Consumer Staples down over 2% and Financials down over 1%.

Looking at the ASX top 100 stocks, the best performer so far include Dominos Pizza up over 12% while Oz Minerals, Carsales.com, CSL and JB HiFi are currently all up over 7%.

The worst performers include Treasury Wines Estates down over 23%, Unibail-Roamco-Westfield, which is down over 17%, while Vicinity Centres and AMP are currently down over 8%.

What's next for the Australian share market

It appears that when we think the market is more bullish, it turns causing us to question our thinking given that, once again, the All Ordinaries Index was more bullish earlier in the week before exhibiting weakness in the later part.

Therefore, it will be interesting to see where the market closes this week. My preference is for a strong high close, as this indicates the market will rise further over the next few weeks. However, if the close shows continued weakness, it means that our market is virtually going nowhere.

Since 1 June, the Australian market has risen just under 7% with most of that occurring in the first six trading days of June. A low close on Friday will mean the market has been trading sideways for 10 weeks, and that a lack of confidence and indecision is still affecting the Australian stock market.

For the All Ordinaries Index to continue rising, it really needs to make a solid break and stay above 6200 points in a more sustained up move. The longer it moves sideways, the more it indicates that the next move will be down.

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Dale Gillham is chief analyst for Wealth Within (AFSL 226347). He has an Advanced Diploma and Diploma of Share Trading and Investment and more than 25 years' experience in the financial services industry.
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