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THE PENDULUM

The MoneyTalk Pendulum illustrates current market levels in the context of predictions made at the start of the year.

As markets swing back and forth it’s useful to keep the big picture in mind, so we’ve developed the MoneyTalk Pendulum.

In January, BusinessDay’s annual Scope survey collected forecasts for the Australian share market at year end from 26 of Australia’s leading market economists (specifically for the benchmark S&P ASX 200). While no-one has a crystal ball, looking at the range and average of expert predictions should provide as good an indicator as any. The adjusted average is 5275 and range is 4700 to 5600.*

At time of writing the ASX 200 is around 4980, about half way toward the lower end of expectations … as illustrated by The MoneyTalk Pendulum…
share pendulum18Feb16
Of course, that’s not to say it won’t swing lower in the meantime, and a lot could happen over the next eleven and a half months to derail the market.

At the moment world markets are rallying;

  • after the US Federal Reserve decided not to raise US interest rates in the light of market volatility,
  • with the oil price recovery after Iran supported a Russia/Saudi led move to freeze production,
  • following credit easing in China, (suggesting Chinese authorities can and will stimulate their economy as they find it necessary),
  • after a strong sell-off tempted bargain hunters.

The two major threats we pointed out in the beginning of the year remain in place, however so caution is still recommended:

  • China’s economy is widely forecast to continue to slow for another year or two, and
  • the U.S. interest rate cycle my be on hold for the moment, but rates there will resume rising with any signs of U.S. economic strength and/or inflation.

[* For those interested in the detail, historical evidence suggests that the most accurate predictions are made by surveying experts, excluding outliers (we simply excluded the two highest and lowest forecasts) and looking at the geometric mean of the rest.]

What are your thoughts?

Do you think the current rally will be short lived, or gain momentum? Join the conversation — leave a comment below and let us know what you’re thoughts are.

Yellow Brick Road Financial Guru