For some time now, I have been looking for the market to move above 4300 points.
As you can see from the above chart this is a point of resistance for the market. The question is will it hold through May.
The saying goes in the US “sell in May and go away” which indicates that investors historically tend to take profits in May before taking holidays. The difference here in Australia it is budget time and the very public pressure being put on the Reserve bank to lower rates.
Let’s look at why this pressure is being applied. The government has spent all funds, which they had to stimulate the economy. As such, the only way left to stimulate the economy is to cut interest rates. There are two major advantages to cutting rates:
The problem is that the Australian Government does not control the Reserve Bank as such they need to put pressure on them to reduce rates.
It has been long held that the Reserve Bank works to maintain inflation around 2-3%. Many so-called experts are now saying that this figure should be higher say 4-5% and therefore justifying a rate cut.
Higher inflation will cause more long-term problems but I guess that will be the LNP’s problem.
I am confident that interest rates will be cut in the coming 6 months; this will stimulate the economy and lower exchange rates. This should see our market move higher as investors become more positive.
Keep in mind that the market is still trading well below its fair value of 4700.
Income is still the key as our economy has a way to go before it is mended, I suspect that we will see some good growth this year in underlying values and I will be looking to take some profits if the market gets carried away.
I continue to buy quality blue chips paying high yields and quality fixed interest hybrids.
For more information on any of the above please contact us on 07 4771 4577.
Subscribe to Grow Your Wealth the FREE weekly financial newsletter.