US Tech stocks causing major market volatility and big announcements anticipated for the Australian economy
- International and Australian markets rose very strongly over August, albeit with the Australian market underperforming compared to global markets. Key drivers over this period were the positive news around the progress for a COVID-19 vaccine, and in particular for the US, the rally was primarily the result of just a few stocks – the ‘fabulous five FAAMG’ (Facebook, Apple, Amazon, Microsoft and Google), plus Tesla. This saw US equities reach a new peak over the month despite tensions escalating between the US and China.
- Over the month of September this high sector bias and overvaluation to Tech stocks started coming undone and largely drove the losses, this was coupled with investors worrying about the state of recovery and how much of a detrimental impact the second wave of COVID-19 will have on economies.
- It is worth noting that the rally in the stocks has largely been driven by individual investors, in America, there has been a staggering increase in personal share trading accounts and a high increase in day trading. Arguably a result of people restricted to their home with lockdown laws and increasing unemployment levels plus potentially a lack of sporting events to bet on.
- Looking forward for Australia two key announcements anticipated to have a strong impact longer term occurred. The first being the Government launching a shakeup of the lending rules to make it easier for banks to lend and provide credit. The goal being to stimulate the economy with business and households able to borrow with less stringent conditions (to take effect from May next year). The second being the Reserve Bank of Australia opening the door to a further cut to interest rates (cash rate is currently 0.25%) and/or additional measures needed to further stimulate the economy. The next RBA announcement is due October 6.
- On this same October date, the Federal government will provide their Annual Budget (delayed from May) with announcements of further stimulus measures, this includes an expected bring-forward of the progressive tax cuts for individuals which were slated for 2022.
- In the US, the presidential election is just 6 weeks away with the first in a series of presidential debates commencing this last week of September. Polls currently have Democratic nominee Joe Biden marginally in front of Republican incumbent Donald Trump. Economically the biggest announcement over the period came from the Federal Reserve, noting that for monetary policy going forward they would no longer look to be pre-emptive but rather reactive to economic data coming out when formulating their actions. Only when the American economy reaches full employment and inflation rises above 2% will there be a consideration to increase rates. The key impact being US short term rates are likely to remain at zero for the foreseeable future (potentially years) and will have a notable flow on effect for the global economy.
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