The Australian sharemarket bounced back in July, with the All Ordinaries Index increasing 4.2% to close at 4,507.4 points. Improved confidence and a positive US reporting season drove all markets higher.
The Dow Jones Index closed up 3.2%, the FTSE gained 6.9%, the Nikkei 225 gained 1.6% and the Hang Seng increased 4.5% for the month.
The volatile range of trading of the past couple of months is typical of the second year after a bear market. Sharemarkets almost always stage strong recoveries in the 12 months following a bear market (defined as a 20% fall in a share index). Months 13 to 24, however, can be challenging.
The powerful rally following a bear market is usually accompanied by a rising in company valuations, as investors anticipate a rebound in earnings. Fortunately both domestic and US earnings seasons have been positive.
We retain a broadly positive outlook for the sharemarket. The recent pull-back in share prices may present an opportunity for an astute long-term investor in our view.
In political news, the date for the Federal Election was set as Saturday 21 August. We do not expect the election result to play heavily on the sharemarket.
The Reserve Bank of Australia kept rates on hold in July and today announced that rates would remain on hold in August. The pressure to increase interest rates appears to have eased in the near term.