6 months into 2024 and it’s been a year of “flip flopping”, flip flopping on the taming of Inflation, flip flopping on Central banks hiking or cutting interest rates, flip flopping French and UK elections and flip flopping on the US presidents cognitive ability to serve another term, meanwhile the S&P 500 & Nasdaq most definitely aren’t flipping flopping and have been on a way train driven by the Bulls, unfortunately down under the ASX200 has been flip flopping between 7,500 & 7,900 points.
Market Performance to the end of FY24 summarised below:
| 1m | 3m | 6m | 1yr | 2yr (p.a.) | 3yr (p.a.) | 5yr (p.a.) | |
| Australian Shares | 1.01% | -1.05% | 4.22% | 12.10% | 13.43% | 6.37% | 7.26% |
| Australian Listed Property | 0.39% | -5.63% | 10.17% | 24.65% | 16.08% | 5.74% | 4.38% |
| US Shares (USD) | 3.47% | 3.92% | 14.48% | 22.70% | 20.10% | 8.31% | 13.17% |
| World Shares (Hedged) | 2.28% | 2.88% | 13.18% | 20.11% | 18.31% | 7.06% | 10.95% |
A couple new changes have kicked in now that we are in the 24/25 financial year this includes the increase in concessional cap from $27,500 to $30,000 & non-concessional cap increase from $110,000 to $120,000. This means under the bring forward rule you can non-concessionally contribute up to $360,000 this FY.
*NOTE*
- If you are salary sacrificing to the maximum concessional cap you should look at increasing your salary sacrifice arrangements from July next year, please contact your adviser and/or payroll team to confirm or assist with this increase.
- Beware: If you triggered a bring-forward in either 2022/23 or 2023/24 you don’t gain access to the increased NCC cap in 2024/25. This is because the maximum NCCs that can be made under a bring forward are determined in the financial year the bring forward is triggered.
The other significant change to come into effect are the new “revised” tax brackets, below highlights the changes.
We shall all benefit from a tax cut all be it for higher income earners less than originally proposed.
Inflation is still quite the hot topic on not only Investors’ minds but more importantly the Central banks and specially the RBA’s. We began the year thinking inflation had been tamed and was on its way back to the ‘target area’ and this would give central banks the greenlight to cut rates. Markets priced this in accordingly with expectations of several rate cut by years end starting in July. However, here we are with neither the RBA or US Federal Reserve having pulled the trigger on rate cuts and the verdict is still out as to whether they will in 2024 with it more widely expected now that the RBA needs to hike as the decrease in inflation locally has stalled around 4% and that the Federal reserve will initiate its first cut in September later this year. This “flip flopping” of inflation and interest rate expectations has led to the local market being range bound between 7,500-7,900 points for the first 6 months of the year.
You can’t talk about inflation and interest rates without talking about Gold and how the prior effect the later. Gold has been very strong for the first 6 months of 2024 breaking through the elusive $2,000 US barrier again however this time extending the advance to just below $2,500. The advance in Gold has been somewhat unforeseen especially when you look at the correlation to real yields. Real yields historically have had a negative correlation to gold i.e. the cost of owning gold is greater when interest rates are higher and therefore Gold tends to struggle as investors prefer to hold bonds. This correlation has broken, and the “jaws” are well ajar leading to the question how or if this correlation will correct itself. The strength of Gold has come from continued geopolitical risk & uncertainty with significant central bank buying across the non-western allies (BRICS).
Talking about uncertainty, at time of writing Biden has just dropped out of the US presidential election race and a week ago Former President Trump survived an assassination attempt, as a result of the later and trumps immediate and defiant response (see image below) Polls have trump as a clear favourite, the market has been calling & pricing in that trump will be the next US president. So, what does a Trump presidency mean for Markets & interest rates??
The so-called “Trump-trade”, which presumes the former president’s tax policies will lift corporate profits, while undermining the country’s long-term budget health is bullish for markets but not so much for longer dated bonds, however, not all sectors will be a beneficiary, Trump is openly an advocate for drilling in America and against the renewable movement, his anticipated hawkish trade policies, immigration restrictions, and tax cuts will impact large, globalised companies and support companies that operate mostly in America. The potential bearish impact on bonds from a Trump presidency must be considered alongside the current macroeconomic environment of slowing growth and declining inflation, as well as the possible limits on further fiscal stimulus.
Considering these factors, it appears more likely that U.S. bond yields will be lower over a 6-12 month investment horizon.
The Renewable Sector, especially lithium has been somewhat on the nose this first half of 2024 and this isn’t solely due to Trumps likely negative stance on the industry but rather an oversupply, lesser than anticipated demand and a slower and harder transition than expected. Local Lithium names have struggled with declines in excess of 30-40% year to date. Lithium hasn’t been the only renewable that’s been in the spotlight, Copper too, has had quite the first half to the year. Copper another very important resource in the renewable energy transition rallied to over $5 on fears of shortages however, Copper is also a global growth leading indicator and since its highs has fallen away swiftly with fears of global economic slowdown and China may not come to the table with its economic stimulus packages as previously expected to get it out of its property downturn.
With what’s been quite the bizarre and entertaining first half of the year the back end should be equally as exciting
The main event being the US election on November 4th, as we will bid farewell to President Biden who will take his place?
The currently unknown new Democrat nominee, Kamala? Gavin? Hillary? Maybe even Michelle? Or is it too late and Trump will find himself in the Oval Office once again.
Locally all eyes are on the RBA and what their next move will be.
Are they going to bite the bullet and hike interest rates putting another nail in the coffin for mortgage holders? Will they sit put and hope inflation tames itself? Might they even cut rates if the Australian economy finds itself in a spot of bother later into the year?
As always, we will be watching eagerly yet tentatively.
All the best for the remainder of the year.
