Aussies are still shopping - here's what that tells us about the economy

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You could be excused for thinking that the Australian economy and Australians themselves are doing well when you hear that the unemployment rate is at a 50-year low and underemployment is tumbling to a 40-year low.

You might even be feeling positive despite inflation breaking above 6% and being at its highest level since 2001.

While many are employed, inflation is eroding our spending power with price rises across the board and with the three interest rate rises over the last three months you would think retail spending would be falling.

retail credit shopping economy

Yet according to the RBA it was up 0.2% in June this year and up 12% compared to June 2021. The RBA will report on retail spending again on August 3 and August 28, so it will be interesting to see if spending continues to increase.

The increased spending is being reflected in strong rises across many retail stocks. Myer is leading the charge up 52% after it released its FY22 trading update this week reporting that total sales for the second half were up 16.5%. JB Hi-Fi is also up around 12% and Harvey Norman is up around 11% in July.

Reporting season is also underway with most retail companies due to report in August and the ones to watch include JB Hi-Fi on August 15, WOW on August 25 and WES on August 26.

If the RBA reports an increase in retail spending next week, then if Myer's results are anything to go by, there may be some opportunity in the stocks mentioned above.

So, my advice is to watch what unfolds with these stocks just prior to their reports being released, as this may be an indication of where their share price is heading. There will also be opportunities in other retail stocks although you will need to be selective.

The best and worst performing sectors this week

The best performing sectors include Materials and Energy, which are both up more than 3% followed by Financials up over 1%. The worst performing sectors include Utilities, Information Technology and Consumer Discretionary, which are all down over 1%.

The best performers in the S&P/ASX top 100 stocks include Mineral Resources up more than 13% followed by Pilbara Minerals and Allkem, which are both up more than 8%. The worst performing stocks include Atlas Arteria down more than 6% followed by JB Hi-Fi down more than 5% and Computershare down more than 4%.

What's next for the Australian stock market

July has been a very good month on the All Ordinaries Index with the Australian market up around 5.5% with most of the rise occurring over the past two weeks. While we know things can change quickly, the strong move over the past two weeks is a very good sign that the bullish run will continue.

A strong close today will also be a good sign and signal that the market is highly likely to rise into next week. That said, I am expecting the market to fall over one or two weeks and a weak close on Friday may see the move down begin next week.

Given the challenging nature of our market this year and its ability to move in either direction quickly, I am loathe to call the low of 6581 on June 20 the bottom of the bearish run and that a new bull run is unfolding, as I will not be convinced that a bull market is unfolding until we see the next move down. Given this, it is far better to err on the cautious side rather than being overly bullish.

While there is plenty to be optimistic about in regards to a number of the top stocks, reporting season is on our doorstep, therefore, the market is likely to be volatile and now is not the time to be bold and blindly jump into stocks early hoping for a good result.

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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.