Strong finish to the week.
There are a number of issues which will put pressure on the market but more so the economy.
At present we are facing uncertainty in the world regards the Middle East, this can have the affect of increasing Oil prices which we have to date already seen Oil move over $100 a barrel. If oil continues to increase and the issues in the Middle East are not sorted, you could in fact see a profound affect on the markets.
Energy is a big part of the running costs of most large company’s world wide, any increase in this expense will flow through to the bottom line as such earning and profit downgrades will follow. This was seen back in 1973 with the OPEC oil crisis
The next issues come with natural disasters in the country over the past couple of months; although this will put some strain on industry in the short-term it will also provide a sort of stimulus package to the country with the government now having to undertake some major infrastructure projects.
The Carbon Tax will cause inflation, which will flow through, to the end user putting more strain on the average taxpayer.
With inflation moving up you can expect to see interest rate rise which will put pressure on lending and indeed slow down the building and retail non-discretionary spending. Increase interest rates and higher unemployment will put long term pressure on the property market, which will lead to the economic low, this will when the economy will bottom.
The bright side of the story is back in 2008 and 2009 Australian companies raised capital to improve their balance sheets. We now have good quality companies which have strong business models and will last long into to the future.
This is not to say that there price will not fall but it does mean that the price will come back in time and along the way you will continue to receive a fantastic dividend.
You must always keep in mind that the price of a company stock does not represent the value of the company; it merely indicates the amount of panic in the market or the amount of optimism in the market at that point in time.
If you would like more information please call me on (07) 4771 4577.