Market Update

Latest market updates and commentary.

Recession & volatile world markets

Volatile world markets

(Reading time: 2 - 4 minutes)

Feeling a bit seasick from the volatility of the world’s financial markets?

You are not alone! Last year I forewarned the continuing volatility of the financial markets and Australian housing market. Currently, the average house prices fall is approximately 10%. We still feel that some suburbs may fall a little further, though there seems to be some leveling off overall. The concern is that as some people come out of a 2-year fixed term mortgage at 2% and go to a new variable rate of above 5%, the increase may be unaffordable and force them to sell. Time will tell.

The Australian and worlds stock market prices are showing signs of recovery after a wild ride caused by the increased interest rates, inflation, supply shortages and uncertainty thanks to Mr Putin.
Most leading economists now see the world slowing due to high interest rates and believe we will enter a period of recession worldwide. Yes, the R word! Australia may see a softer landing but still never nice, Europe a hard landing, and the USA a moderate recession. How will all these events affect my portfolio that is managed by Sydney Financial Planning?

Well, as we go into a recession the worlds governments will need to stimulate the economy. In Australia like in other countries, they will begin to lower interest rates probably later this year or early next year. We will enter this next economic cycle and as interest rates fall it will stimulate growth assets. Typically, shares first, followed in time by property, but this may take some time to turn.

From a historical point, a similar cycle occurred in 1973-74 due the OPEC oil crisis, where the price of oil doubled. The share markets and property both fell heavily, then when the oil price came down, the interest rates went down quickly as the world went into recession and the Australian share market went up over 60 % in one year.

I’m not suggesting a huge share price uplift next year, but many past economic cycles have shown us this trend is what typically happens next.

 

Source: Bloomberg, AMP Capital

Here we are again, finding ourselves having to navigate through volatility for reasons out of everyone’s control. However, there are variables we can control – these include having a plan and regular guidance helping us stick to it, and investing only in quality assets, managed by quality fund managers. That is something we can choose to do, that is also something that stands the test of time. Remember only the patient will get rewarded.

In summary, still expect volatility (that never goes away and it’s completely normal and organic), interest rates will start to go down again and when they do enjoy the upward cycle. In the meantime, take advantage of this uncertainty as it provides rare buying opportunities at lower prices, helping you build wealth and securing your future.

Please feel free to call your financial planner or our mortgage broker from SFP Home Finance and we can review your situation and advise you for your future.

Bill Bracey
Founder & Managing Director

 

Not sure how to take advantage of this volatile market and rare opportunity?

Speak with one of our Financial Planners about the best approach for your circumstances, either book a meeting or get in contact with us on 02 9328 0876.

 

General Disclaimer: This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. Please seek personal financial advice prior to acting on this information.