Australian market hits record high; optimism grows.

by Admin
September 21, 2024

The Australian share market closed the week at a new record high, driven by continued investor optimism around the global economy’s trajectory. A combination of robust market activity and positive global sentiment led to the S&P/ASX 200 index reaching 8209.5 points, an increase of 17.6 points, or 0.2%, by the close of trading on Friday. The intraday peak was even higher at 8246.2 points, with the week ending on an impressive 1.3% gain.

This rise came on the back of the US Federal Reserve’s decision to cut official interest rates by 0.5%. Investors believe the move provides the best chance for the world’s largest economy to achieve a soft landing. Wall Street reacted positively to the news, driving global markets higher, including Australia.

Dividend Flows Pose Challenges

Despite the market’s strength, concerns over share valuations persist, particularly as more investors reinvest large dividend payouts. Commonwealth Bank (ASX: CBA) remains one of the shares identified as overvalued by brokers, with its significant dividend offering continuing to attract reinvestment.

The Australian market will be tested in the coming week as having $14.4 billion in dividends flowing into bank accounts. The market will closely watch how much of this capital is reinvested and which companies are impacted by shares trading without dividends. While dividends offer a vital supply of fresh capital, they can also act as a brake on the market when many companies begin trading without the benefit of dividend payouts.

Sector Performance: Tech Surges While Defensive Stocks Decline

Eight out of eleven market sectors recorded gains during the week, led by consumer discretionary and technology stocks. However, defensive sectors like consumer staples, healthcare, and real estate struggled.

Technology stocks had a particularly strong performance. Life360 (ASX: 360), a family-tracking app, surged 5.2% to close at $18.09. Zip Co. (ASX: ZIP), a leader in the buy now, pay later sector, saw its shares climb 2.7% to $2.67, continuing a stellar run.

Banks also fared well. National Australia Bank (ASX: NAB) reached a 17-year peak, rising 0.4% to $39.67, while Westpac (ASX: WBC) increased by 0.6% to $33.57. Macquarie Group (ASX: MQG) was the only disappointment, falling 0.2% to $231.17 after peaking at $233.91 during the day.

Mining and Retail Sectors Display Mixed Results

The mining sector delivered mixed results this week. BHP (ASX: BHP) rose by 0.4% to $40.34, but Rio Tinto (ASX: RIO) dropped 0.5% to $113.02. Fortescue Metals Group (ASX: FMG) also saw a slight decline, down 0.1% to $17.63.

Retailers showed similarly inconsistent results. Myer Holdings (ASX: MYR) dropped 0.6% to 87c after cutting its dividend and announcing a profit slump for the June year. In contrast, Harvey Norman (ASX: HVN) rose by 1.6% to $4.96 despite facing a class action lawsuit over misleading warranty sales.

Gold Prices Near Record Highs

Gold continued its upward trajectory, with prices reaching a day-high of AU$2,651 per ounce before closing at AU$2,647.10 per ounce. It marks a significant increase in gold’s value, reflecting a 36.42% gain over the past year. Australia, which holds 17% of the world’s gold resources and produces 9% of global output, benefits significantly from these price levels. Western Australia alone accounts for almost 68% of the nation’s gold production.

Small Cap Stocks: Gold and Antimony Drive Activity

Small-cap stocks experienced an active week, with the Small Ords index climbing 1.78% to finish at 3054.5 points. Notable movements included BPM Minerals (ASX: BPM), which reported high-grade gold results at its Claw project in Western Australia. The company now plans to begin Phase 3 drilling later in 2024.

Bindi Metals (ASX: BIM) also made headlines with its acquisition of two antimony-gold-copper projects in Serbia. These projects, located within the Tethyan magmatic belt, are expected to enhance Europe’s supply of strategic antimony resources, critical for defence and renewable energy technologies.

Antipa Minerals (ASX: AZY) saw its shares boosted after upgrading the mineral resource estimate for its Minyari Dome project. The revised resource estimate now includes 2.3 million ounces of gold, alongside significant copper, silver, and cobalt resources.

RBA to Hold Steady Despite Global Rate Cuts

With the US Federal Reserve reducing rates, it is anticipated that the Reserve Bank of Australia (RBA) will uphold its current position. RBA Governor Michele Bullock has made it clear that the central bank is committed to waiting until inflation sustainably declines before considering any rate cuts. With Australia’s interest rates at a 12-year high of 4.35%, households and businesses are continuing to feel the pressure.

Despite the challenging interest rate environment, there is potential good news on the inflation front. The Australian Consumer Price Index (CPI) for August may show a decrease to 2.7%, down from 3.5% in July. However, the RBA will likely wait for further confirmation of a sustained fall in inflation before changing its monetary policy direction.

Outlook for the Week Ahead

Investors will keep a close eye on a range of US economic data due this week, including home prices, consumer confidence, and economic growth figures. These indicators will provide further insights into whether the Federal Reserve’s rate cuts were timely enough to prevent a more severe economic slowdown.

For Australia, the coming week represents a critical test for dividend-driven investments and will shed light on how global central bank policies impact the local economy. Investors remain cautiously optimistic as they navigate ongoing market challenges and opportunities.