Markets – June 2024

Our market’s underperformance can be explained by several factors:

• Heavy exposure to the commodities sector – which has underperformed over the year;
• Lack of quality tech stocks, especially AI-focused ones; and
• Households shifting to a thrift position over 2024, which has negatively impacted the earnings of many companies exposed to the consumer sector.

Figures released last week confirm that Australia’s economy is virtually crawling to a standstill, with gross domestic product rising by just 0.1% in the first three months of the year.

A recent survey by ASIC’s Moneysmart team sheds some light on the state of financial hardship in Australia’s households. Their research found that 47% of Australian adults who hold some form of debt have struggled to make repayments in the last 12 months. The top reasons for this include cost of living pressures, reduced income, and unexpected expenses.

A sharper switch to thrift from households over the next six months would negate much of the stimulus generated over the remainder of 2024 from the stage three tax cuts due in July, and the possibility of official interest rate cuts arriving earlier than expected.

However, there is plenty of good news too. Central Banks have begun their interest rate-cutting cycle, with Canada and the European Central Bank being the first central banks to reduce their official cash rates last week.

Here in Australia, expectations remain that official rate cuts won’t come through until early 2025. Still, given the cashflow stress emerging in households, the chance of rate cuts sooner rather than later can’t be discounted.

Recent finance data show that borrowers are still willing to buy houses – both as owner occupiers and investors. This upturn in housing related lending suggests that households are perhaps a little more resilient than previously expected.