SHARES

The recession is over but we're not out of the woods yet

By

The economic rollercoaster of 2020 continued this week with the announcement that GDP had grown by 3.3% in the September quarter, which officially ended the recession that only started at the end of the prior quarter.

While this is great news, activity in the economy is still down on pre-COVID-19 levels and down 3.8% for the year to the end of September; so while the news is good, we are not out of the woods just yet.

With the exception of Victoria, easing restrictions around Australia resulted in household spending rising by 7.9% in the September quarter.

market wrap the recession is over but we're not out of the woods yet

There was also more spending on services, such as hotels, cafes and restaurants up nearly 10% in the last quarter. Now Victoria is out of lockdown, it will be interesting to see if these economic numbers continue in the December quarter or whether the increased spending is just a short-term reaction.

Right now, the world is looking at Australia and how we have handled the pandemic from both a health and economic standpoint, however, the road forward may not be smooth sailing, as tensions continue to rise with our biggest trading partner China.

These tensions bring both challenges and opportunities although it is still too early to tell how the Australian market and the economy will respond.

If Australia is to stay out of a recession and continue to grow, we need China's help.

That said, most Australians would want our Government to stand tough and protect our interests, as we need to look after our long-term future rather than sacrifice it for short-term gains. The Australian government also needs to continue to support and stimulate the economy, because while the economic news is good, it has been driven by stimulus packages and we are a long way from getting our economy growing under its own steam.

Best and worst performing sectors

The Australian stock market has had a relatively flat week with only two sectors currently in the green. The best performer is Materials up nearly 5% followed by Energy and Information Technology both up less than 1%. The worst performing sectors include Healthcare down more than 2% followed by Utilities down nearly 2% and Communication Services down more than 1%.

Looking at the ASX/S&P top 100 stocks, the best performers include Fortescue Metals up more than 11% followed by Oz Minerals and Rio Tinto both up more than 10%. The worst performers include A2 Milk down more than 6% followed by Magellan Financial and Treasury Wines Estate, which are both down more than 5%.

What's next for the Australian share market

Last week I mentioned that the strong momentum we experienced in November would slow and earlier this week there was weakness in the All Ordinaries Index as it technically traded lower than the previous week. It remains to be seen if this short-term weakness continues next week with another move down in price.

Either way, there is nothing to be concerned about as I expect the All Ordinaries Index will generally trade higher over the coming months to break above the previous all-time high of 7289 set back in February of this year. The next major high is likely to occur sometime between mid-January and mid-February. As I previously indicated, Energy, Materials and Financials were my preferred sectors moving into 2021 and over the past few weeks, these sectors have certainly been strong. I still expect more opportunities to come from these sectors in the coming months, therefore, I encourage everyone to stick to blue chip stocks rather than speculate on more risky stocks.

RELATED STORIES

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.
Post a comment