As predicted July turned out to be another downer for the XAO, the index dropping -5.3%. That makes seven monthly declines in the last nine months.
Last month I said that contrary to popular opinion, the sharemarket had not made a bottom and would continue to head lower which it subsequently did. I see no reason to change that view.
There are growing signs that not only is the Australian economy slowing but it is slowing more rapidly than the RBA and most other pundits thought. Data released today showed that the PMI fell again in July showing a contraction in the Australian manufacturing sector for the second month in a row.
Retail Sales for June were flat and the SFE cash rate futures is now factoring in a rate cut by the end of the year. Financial sector problems continue and in my estimation are only just kicking into gear in Australia. Expect more writedowns from major banks, rising levels of bad debts and increased funding costs to impact earnings and ultimately stock prices.
So I have no doubts that the stockmarket is headed lower over the medium term as it begins to discount the possibility of the first Australia recession in almost two decades a declining profits outlook (anyone notice SUN today?)and a worsening global economic outlook.
With respect to August, history suggests that August is a reasonable month for stocks, having risen 15 times in the last 23 years. As usual though that is no indication of what the market will do this August.
The latest bear market rally was snuffed out rather quickly, I had expected it to last a little longer. No doubt there will be more rallies to come during the current bear market however I don't think it will be enough to put the XAO in positive territory for the month of August.
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Friday, 1 August 2008