The S&P/ASX 200 closed at 7,530.10 points on Wednesday, less than 100 points away from the record-high close of 7,628.90 points reached on 13 August 2021.
On the back of the index’s strongest start to the year on record, market pundits are trying to predict whether the ASX 200 could climb to a new high in the coming weeks.
“It’s certainly possible. It’s only 1 per cent or so away to get to the record,” AMP chief economist Shane Oliver told InvestorDaily.
Towards the end of last year, Dr Oliver outlined his prediction that the index would sit at around 7,600 by the end of 2023.
“I’m probably not inclined to revise up at this stage because the issues I thought might constrain it are still in place,” he noted.
“That is slower economic growth, risk of recession in some countries which would affect demand for our products, and obviously slower profit growth. But it’s certainly a possibility that we can go through it.”
As the interim reporting season kicks into gear, some believe that this might just be the catalyst to push the ASX 200 to a new record, including eToro’s market analyst Josh Gilbert.
Given that the index is sitting so close to its record high, Mr Gilbert told InvestorDaily that a strong reporting season would likely drive the market higher.
“With the financial sector making up almost 30 per cent of the ASX 200, the focal point will be strong results across this sector and resilient results elsewhere — especially materials,” he said.
Mr Gilbert noted that he would be looking to Australia’s banks to lead this reporting season.
“Interest rates have surged, which will boost margins and push earnings higher. Banks are quick to pass on rate increases through lending but aren’t as quick to pass this on for deposits. Ultimately, this means they’re making more money on net interest income,” he stated.
“We could also see some surprises from consumer stocks. Consumer spending was resilient throughout 2022 until December and I’d expect this to reflect in the results.”
But Dr Oliver predicted that any upwards momentum coming out of the current reporting season was unlikely to be long lasting.
“My base would be, we may get above that level, but I think we may spend a bit of time sort of churning around for much of this year,” Dr Oliver suggested.
“We’ve had a huge start to the year, with the ASX up over 6 per cent in the month of January, and that’s been helped by a bit of relief on the part of investors and somewhat better economic data, both on inflation and growth, and optimism that central banks are nearly done.”
The AMP chief economist also warned that some of the issues facing markets are expected to continue to wax and wane moving forward.
“We’ve still got the recession risk out there and geopolitical issues are still lingering, as highlighted by the balloon across America. I suspect we’re still going to get a bit of volatility in there but the earnings results, I think, will probably be okay,” he said.
Dr Oliver opined that upcoming results will be somewhat constrained following the strong earnings growth seen directly out of lockdowns.
However, on a positive note, Dr Oliver pointed out that some of the recent results seen in the US haven’t been as negative as expected, particularly for tech stocks.
“I think it’s this concept that, if things aren’t as bad as feared, then you can get a bit of a rally going, so it may well be the case that if the earnings results are better than feared, then you can quite easily see the ASX push up to the record high,” he stated.
“It’s often the case that the closer you get to a record high, traders sort of try and push it up there anyway to see what will happen. It sort of becomes, in chaos theory, a bit of a strange attractor. The market gets attracted to that level to see what will happen, so it is always quite possible that we could push up there, even though, by the end of the year, we still end up around 7,600 or thereabouts.”
Similarly, when considering the outlook for the local stock market, Mr Gilbert highlighted the “better-than-feared” performance of the consumer discretionary and staples sectors in the US.
“It may be that we see outlooks being the focus metric this reporting season, similar to what we’re seeing in the Q4 earnings season in the US. If management can offer strong forecasts, companies will likely be rewarded,” he predicted.
Jon Bragg
Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.
