Aussie market have been caught in the winds of change

For a brief moment the Australian share market (S&P/ASX200) traded at a new record high of 7,173 points last week, meaning the market broke above its pre-covid all-time high of 7,163 points. This rally was in tandem with Australia's economy growing quicker than expected. At the same point last week, the US sharemarket also rallied to another record all time high.

But as we know, the share market can be unpredictable and irrational, proven by the rapid decline in the S&P/ASX200 at the end of last week, which may have left some investors with a lingering sense of déjà vu (to March 2020 when the Australian share market last peaked).

With the end of the financial year fast approaching, the market is likely to see groundhog day like behaviour from investors. We're already seeing this transition take place, with investors rotating out of recent underperformers such as tech (which is down 19% YTD) and seeking refuge in areas likely to do well in the next phase of economic growth such as traditional heavyweights like the banks (up 15% YTD) and miners (up 15% YTD).

In other major news, the 2021-2022 Federal Budget was also handed down last week. It's important to reflect on this and assess how and if your investment portfolio could benefit from the changes.

With all this in mind, let's take a look at what is going to influence the share market in the coming month.

Impacts on your portfolio from the 2021-2022 Federal Budget

Dubbed by many as a formality "we had to have", given the last Budget was only handed down in October last year, the 2021-2022 Federal Budget announced key areas it will be focusing on to stimulate the economy in this post-pandemic world. Major winners include infrastructure projects, aged care, and efforts towards strengthening the nation's cybersecurity measures.

As an investor, it's worth considering pivoting your portfolio to leverage off the cash boost into these sectors.

Infrastructure

$15.2 billion in extra funding has been committed to projects such as Melbourne's port terminal, New South Wale's Western Highway and Perth's Metronet extension. Consider adding companies that will aid in the construction of these projects - perhaps like toll road developers Transurban (ASX:TCL) and Atlas Arteria (ASX:ALX), or engineering companies like Cimic (ASX:CIM) and Downer (ASX:DOW).

Aged care

After the scathing findings from the Royal Commission into Aged Care (highlighting the sector was gravely underfunded), it was not surprising the government allocated a large sum ($17.7 billion) to the sector. Look at listed aged care homes and retirement living providers such as Regis Healthcare (ASX:REG), Estia Health (ASX:EHE) and Japara (ASX:JHC). Another avenue to look into is health-tech companies like Alcidion (ASX:ALC), a patient tracking software provider, which are obviously vital to the sector.

Cybersecurity

Given the increase in cyber-attacks over the last year, the government has pledged $1.6 billion to the cybersecurity and artificial intelligence (AI) sector. The practical outcome of this will aim to safeguard national security and the economy by upskilling Aussies in education into cybersecurity measures, increasing the protection of consumer data, and artificial intelligence.

To leverage off this, consider looking at companies already working with the government in these areas such as Tesserent (ASX:TNT) and WhiteHawk (ASX:WHK), and BrainChip (ASX:BRN).

Another option to contemplate is the BetaShares Global Cybersecurity ETF (ASX:HACK), which invests into 40 of the world's biggest cybersecurity companies.

Making sense of fluctuating tech movements

Some of the best performing shares throughout the pandemic (mainly in the tech sector) have recently plummeted as the sector has been stifled by inflation induced headwinds. Despite the RBA promising low rates for the foreseeable future, the economy's strong recovery could potentially force the RBA's hand to increase interest rates - potentially preventing tech shares from bouncing back.

The biggest tech stock in Australia, Afterpay (ASX:APT), has succumbed to this pressure. Afterpay's shares halved from $160 in February to $84 in May, which means the seemingly untouchable buy-now-pay-later juggernaut is trading at October 2020 levels and could continue to fall further alongside other tech shares.

One of the fundamental principles of investing is that you should take a long-term view in terms of building your wealth, so for investors with this in mind, it may be a ripe time to take advantage of these cyclical moves and buy into the sector at a lower price.

Banks bonanza

History dictates the market slows around the end of the financial year, so as pandemic front-runners fall back, cyclical safe havens are taking the lead.

Companies in the financials sector are considered cyclical, meaning they perform strongly when the economy is expanding (such as now!). As an example, Commonwealth Bank (ASX:CBA) and Macquarie Group (ASX:MQG) recently hit all-time highs as the economy and business confidence remains on an upward trajectory.

Positive forward-looking indicators also support this sentiment, as home loan applications and building approvals are also at all-time highs. As a result, the banks' bottom lines are likely to reflect this growth.

Between the deja vu-like sharemarket cycle, Federal Budget and temperamental tech sector there's a lot for investors to contemplate this month.

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