In its November Economic Update, Morningstar said the outlook for Australian equities got a major boost from stronger-than-expected employment data for October.
"There were 58,600 new jobs, whereas forecasters had expected only 15,000, and the vast bulk of them (40,000) were full time," said the research house – and the unemployment rate dropped to 5.9 per cent from the previous 6.2 per cent.
Indeed, the numbers were so unexpectedly strong that many commentators wondered whether there was something wrong with them, said Morningstar.
The Westpac Melbourne Institute consumer sentiment index jumped to such an extent that Westpac described it as a "cracking result"; and the NAB survey of business confidence for October found conditions are "robust" and the non-mining economic recovery is "gaining further traction".
The RBA's latest Monetary Policy Statement said economic activity is accelerating, but noted that it may not be enough for equities to take off just yet, said Morningstar.
"As in many other equity markets, shares are somewhat on the expensive side set against the underlying outlook for profits," said Morningstar.
The RBA has noted that the valuation of Australian equities, as measured by the forward price-earnings ratio, remains a "little above the average since 2003".
"The share market may want to see clearer evidence of back-to-normal rates of growth before taking prices to higher levels," said Morningstar.
