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In August the market dived, but then revived on rate hopes – Monthly economic and market review

By Percy Allan

US investors recognise that inflation is on the mend so is no longer the main threat. A deterioration in America’s labour market raised fears in early August that America could slip into recession, but the US Federal Reserve’s intent to start cutting rates from September has convinced investors that it wants to avoid a hard-economic landing.

Though the US and global share market did a bungee jump in August, the biggest change was investors attitude to big-cap tech stocks. Previously Wall Street exuberance reached a zenith with artificial intelligence seen as the big breakthrough that would secure America’s prosperity for decades to come. Now, investors question this nirvana outlook and thus have gone shy on the Magnificent-7 hi-tech stocks, especially their front-runner, chipmaker Nvidia.

In Australia, economic sluggishness and sticky inflation remain the main concerns. Household purchasing power is back to where it was in 2017, but the economy has held up due to record immigration.

Expected strong earnings with dividends from some of the country’s largest listed companies have buoyed the share market, suggesting customers have run down savings rather than stop spending. But new data shows that household savings, which peaked in March 2022 following pandemic work and social restrictions, have now been exhausted.

about the Author:
Percy Allan AM was Chair, Evidence Based Policy Research Project (2018-2022). He is also a Visiting Professor at the Institute for Public Policy and Governance, University of Technology Sydney. (Former Secretary, NSW Treasury and Chair, NSW T-Corp 1985-1994 and Chair, NSW Premier’s Council on the Cost & Quality of Government, 1999-2007)