Market wrap: Is this week's RBA rate rise a positive sign?


Not surprisingly, the RBA raised interest rates again this week but they only increased by 25 basis points or a quarter of a per cent. This signalled to the market that things may not be as bad as we have been led to believe, as the All Ordinaries Index has risen more than 5% since Tuesday's announcement.

We know that markets and economies ebb and flow, so the surprise rate rise may be a sign from the RBA that the future is not looking too bad and we should be looking at the stock market in a more positive light.

Currently inflation is a little over 6% and the RBA expects this to rise to around 7.75% this year although their goal is to reduce it to between 2 and 3%. Their expectation is that in 2023 it will drop to just above 4% and in 2024 reach their target of 3%.

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Governor Philip Lowe also stated that the employment rate was sitting at 3.5%, which is the lowest it has been in almost 50 years, while job vacancies are very high. As the economy slows over the next 12 months, unemployment may rise but in reading between the lines it seems with the incremental rate rise this month, the RBA believes they have everything under control and moving in the right direction.

So, how will this play out in the stock market?  Institutions tend to plan for the worst and hope for the best. With inflation very near its peak and the smaller than expected rate rise, maybe the worst is over or will be very soon, as Institutions are buying up right now but we'll have to wait and see if they continue to do so.

Investors, on the other hand, tend to do the opposite as they don't plan for the worst, which means they often buy when they should be selling and vice versa. Given what has transpired this week, I believe there is light at the end of the tunnel and investors would be wise to utilise the time to start looking for opportunities in the market, as 2023 is likely to be much better than 2022.

The best and worst performing sectors this week

The best-performing sectors include Energy up more than 9% followed by Information Technology up more than 7% and Materials up more than 6%. The worst performing sectors include Consumer Staples, which is just in the green followed by Healthcare up more than 2% and Communication Services up more than 3%

The best performers in the S&P/ASX top 100 stocks include Pilbara Minerals up more than 18% followed by Whitehaven Coal up more than 16% and Block up more than 12%. The worst performing stocks include Woolworths Group down more than 1% followed by Endeavor Group, which is just in the red while the Star Entertainment Group and Coles Group are flat so far for the week.

What's next for the Australian stock market

I know I have said it before, but a week can be a long time in the stock market and this week has proven just that. After falling more than 10% in the prior six weeks and looking as though we should expect further falls, this week the All Ordinaries Index turned sharply rising over half of what it fell in the prior six weeks.

While I would love to say the down move is over, I can't just yet, as one week doesn't prove anything and, as we have experienced the market can do anything.

Last week I stated that if the market was going to rise until the end of the year, it needed to find support now above the June low of 6,581 points. The rise this week could be the first sign that this is occurring or we could just be experiencing a sucker's rally that will catch a lot of investors out. Right now, it would pay to wait for confirmation of the direction the All Ordinaries Index will take.

While the market has so far been positive this week, I still need to err on the cautious side and assume it is still bearish until it confirms otherwise. As such, it could still fall away over the coming month with the next level of support at 6192 points.

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Dale Gillham is chief investment analyst at Wealth Within Limited (AFSL 226347). He also serves as the head trainer at the Wealth Within Institute (RTO 21917). He has more than three decades of experience in the investment industry, and is the author of How to Beat the Managed Funds by 20%, Dale's qualifications include an Advanced Diploma and a Diploma of Share Trading and Investment. He co-hosts the Talking Wealth Podcast, and his work has appeared in The Australian Financial Review, New York Business Journal, Wall Street Select and more.