August market & economy update: what it means for your money

Hello and welcome to your August Market Update!

August was another relatively positive month for global sharemarkets, despite ongoing uncertainty around interest rates, inflation and the Middle East. US shares continued to perform strongly, supported by very strong company profits and continued enthusiasm around artificial intelligence. Australian shares also performed reasonably well, although they have continued to lag the stronger gains seen overseas.

One of the biggest themes during the month was interest rates. In Australia, the Reserve Bank left the cash rate unchanged at 4.35% following three increases earlier this year. While this provided some relief for borrowers, the Reserve Bank made it clear that inflation remains too high and another increase is still possible.

That concern became more noticeable towards the end of August. Inflation eased slightly to 3.5% over the year, but underlying inflation remained stubbornly high. This means another interest rate rise later this year remains a real possibility, particularly if inflation does not continue to improve.

The Australian housing market also weakened further during August. National home prices fell around 0.9% during the month and are now around 3.6% below their recent peak. Sydney and Melbourne have experienced larger falls, while weakness is increasingly spreading to other capital cities. Higher mortgage rates, poor affordability, lower confidence and changes affecting property investors are all weighing on demand.

Australian company reporting season was generally reasonable, with profits recovering after several weaker years. Mining and financial companies were among the stronger areas, although overall profit growth has been much stronger in the United States. Some Australian companies are also beginning to see the impact of higher interest rates and a slowing housing market.

Global markets continued to receive significant support from large technology companies. Investment in artificial intelligence remains extremely strong and company profits have generally justified much of the recent market optimism. However, after substantial gains, there remains a risk of short term pullbacks if expectations become too high.

Oil prices also eased during the month as there were signs of improved energy shipments through the Strait of Hormuz. This was positive for inflation and markets, although oil prices remain higher than before the Middle East conflict and the situation remains uncertain.

What it meant for investors

August showed again that markets can perform well despite plenty of reasons for concern. Strong company profits and continued economic growth have helped support shares, while higher interest rates and falling property prices are creating more pressure in Australia.

It is also worth remembering that economic and market forecasts are never certain. Rather than trying to predict every market move, having a diversified portfolio and a disciplined long term strategy remains far more important.

What to expect in the months ahead

Shares: Markets may remain somewhat volatile after strong gains, particularly as August and September have historically been more unsettled periods. High valuations, interest rates and geopolitical uncertainty remain risks, but strong company profits continue to provide support.

Interest rates and the economy: Inflation remains the key issue in Australia. The Reserve Bank is likely to remain cautious and another rate increase remains possible if inflation does not ease quickly enough.

Property: Australian property prices are likely to remain under pressure as higher mortgage rates reduce borrowing capacity and confidence. However, the ongoing shortage of housing should provide some longer term support.

For most long term investors, the key message remains the same: markets rarely move in a straight line and forecasts will often change as new information becomes available. Staying diversified, sticking to your plan and focusing on your long term goals generally leads to better outcomes.

This update is general in nature and does not take your personal situation into account. If you would like to chat about how these trends relate to your own plan, I am always here to help.

If you have any questions or concerns, please reach out at any time.

Warmest regards Josh