Hang on, smooth sailing is coming after the dip in the market


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History dictates that if the stock market is bullish in the first quarter of the year, it is likely it will end the year in positive territory. Over the last 70 years, statistics on the Dow Jones Index confirms that if the first quarter of the year is bullish, it will almost certainly have a positive gain for the year. While I don't have statistics on this for the Australian stock market, it would be reasonable to assume that a similar pattern would apply.

In the first quarter of 2021, the Australian market rose 2.43%, while the Dow Jones Index rose over 7% or around four times more than its historical average. While this is very bullish, most of the gain occurred in March of this year.

Interestingly, the tables have turned slightly given that the All-Ordinaries Index has so far risen around 60% more than the Dow Jones in April. So, what can we make of this?

market wrap smooth sailing

As we know, markets ebb and flow and despite the Dow Jones performing very well in the first quarter of 2021, this doesn't mean it will continue to rise at the same speed for the remainder of the year. The same can be said for the Australian market, as it is quite possible given the modest gains to date that we may well see it pick up speed in the second half of the year.

In reviewing the results of the Australian stock market in the first quarter of 2021, Financials are up 11.32%, Consumer Discretionary is up 7.44%, while Communication Services is up 7.05%. Information Technology, on the other hand, is the worst-performing sector, as it is down 11.53% although in the first two weeks of April it has risen nearly 15% on the back of strong gains from Afterpay and Xero. As I have said in many previous reports, I am confident that the Energy, Materials and Financial sectors will do well this year, so it will be interesting to see how the market unfolds from here.

Best and worst performing sectors this week

Once again, Information Technology is the strongest performer, up more than 3% followed by Healthcare, Consumer Staples and Materials, which are all up more than 1%. The worst performing sectors include Utilities down more than 10.35% followed by Communication Services and Industrials, which are both just in the red so far this week.

The best performers in the ASX/S&P top 100 stocks include Mineral Resources up more than 9% followed by Altium up more than 5% with several stocks including Xero, The a2 Milk Company, Afterpay and Ampol all up more than 4%. The worst performing stocks include The Star Entertainment Group down more than 5% followed by Qantas and TPG, as both are down more than 4%.

What's next for the Australian share market

This week the All-Ordinaries Index continued to move higher to achieve a new all-time high after breaking the previous high of 7,289.70 points set back in February 2020 just before the COVID meltdown. While this is good news, what many investors don't really appreciate, especially those new to the market, is that the fall and subsequent rise that unfolded between February 2020 and now is unprecedented and abnormal, as the market has never behaved like this in the past. Given this, the increased number of investors who have jumped into the market since the March 2020 low are yet to be challenged.

Moving forward, the market is likely to have a pullback for one or two weeks, which should start in the next week or so, although I believe this move will be short lived, as I expect it to be mostly bullish until around mid-May and possibly longer as it rises to around 7600 points. For now, good luck and good trading.

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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.