Aspirations Insights: October 2023

Welcome to the ninth edition of the Aspirations Wealth (AW) Insights for 2023. AW constantly monitors the investment markets and aims to keep our valued clients regularly informed and updated.

In this AW Insights edition we cover:

  • Interest rate outlook
  • Third quarter (Q3) share market update

RBA leaves cash rate on hold at 4.10% for the fourth month in a row

The pause in interest rates over the last four months comes after the biggest interest rate hiking cycle (4% over 14 months) since the late 1980s which preceded the early 1990s recession. The rise in interest rates has taken mortgage rates back to levels last seen in 2011.

The possibility of one more interest rate hike is still high particularly with sticky inflation. Economists seem to be split roughly 50/50 as to whether there will be another rate hike or not and our assessment is that the probability is around 50%. Continuing to raise interest rates will only add to the already very high risk of unnecessarily knocking the economy into recession. At the very least the economy is likely to have slowed substantially by early next year with unemployment starting to rise faster than the RBA is allowing for. Based on a cash rate of 4.10%, we would say rates are very close to the high we will see during this part of the economic cycle, however we also don’t see rate cuts coming any time soon.

Q3 Share market update

After rising in July, shares fell in value during August and September – see chart below showing world share market returns for past quarter.

With the trajectory of the world economy hanging in the balance, shares fell in value during this quarter. Many investors have concerns about the current economic environment. While inflation is falling, investors understand that interest rates are likely to stay higher for longer than expected, which usually puts pressure on shares. AW think there are good reasons to stay actively invested in quality shares however with one eye on the lingering risks.

Over much of this year, fears about recession have gradually faded, at least in the US, and rising confidence that inflation has peaked has supported a reasonable rally in shares (until recently). 

The performance of share markets this year has been better than in most economic downturns. Markets have been pricing in a soft landing, a peak in interest rates and the re-emergence of technology deflationary forces on the back of the Artificial Intelligence phenomena. However, a resurgence in oil prices, stickier inflation, and stronger economic data, predominantly in the US, has raised the risk that interest rates will need to stay higher for longer. High interest rates should result in weaker growth and lower inflation, this will likely lead to higher share market volatility and shorter sharper market cycles.

AW are ready to buy more quality shares if the market weakens further and happy to own bonds paying high interest as well (i.e. hold a good diversified portfolio).  In this current environment, we believe it is important to dial down the noise, take a medium to longer-term perspective, and remain focused on quality.  

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Any advice contained in this insight/update is general advice only and does not take into consideration the reader’s personal circumstances. To avoid making a decision not appropriate to you, the content should not be relied upon or act as a substitute for receiving financial advice suitable to your circumstances. When considering a financial product please consider the Product Disclosure Statement. Aspirations Wealth Group is a Corporate Authorised Representative of Aspirations Private Wealth Pty Limited. ABN 57 622 182 076 – AFSL 503889.