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Get your Santa hats and surfboards ready, as it’s that magical time of year when we all prepare to celebrate the festive season.
Before you overindulge, let’s consider the New Year ahead, which we’ll do by delving into the Westpac-Melbourne Institute Index of Consumer Sentiment.
This provides an insight into the financial landscape, because Christmas isn’t just about barbecues and sunscreen, it’s also a retail bonanza for our retailers!
The survey showed there was a positive impact of the RBA’s (Reserve Bank of Australia) decision to keep interest rates on hold this month, with the index rising from 79.9 in November to 82.1 in December. While this only represents a 2.7 per cent increase in consumer sentiment, 2023 marks the second-worst calendar year on record for consumer sentiment since 1974. Given this, we may need some Christmas magic to take us into 2024!
Of those surveyed, 60 per cent still expected interest rates to rise in 2024, which was a decline from the 73 per cent recorded in November. Unsurprisingly, inflation dominated the survey, with 55 per cent of consumers hearing or reading news about it. The consensus from consumers was that all major news topics of late have been negative rather than positive. However, based on my experience, opportunities are at their best when sentiment is at its worst.
Christmas in Australia typically results in a surge in retail activity, which means the economy gets a boost from increased spending. However, the sub-index related to purchasing major household items fell 3.8 to 78.2, suggesting consumers are taking a cautious approach to making larger purchases due to declining purchasing power. This year, the sub-index returned five of the eight weakest monthly reads in history, dating back to 1974.
When tracking finances for the next 12 months, this sub-index rose 3.9 percent to 90.4, meaning consumers are more optimistic about their future. Optimism is also positive in regard to the economic outlook for the next five years, as the sub-index had a solid gain of 9.7 per cent.
This is a great sign as it indicates Australians can see the light at the end of the tunnel, which should transpire into opportunities in the consumer discretionary space in 2024. Interestingly, despite all of the negative news this year, some listed companies in this sector are already up over 18 per cent, including JB HI-FI (ASX:JBH) and Wesfarmers (ASX:WES), while Harvey Norman (ASX:HVN) is down 5.5 per cent, although it is looking poised for a comeback.
What does all this mean? As I continue to say, the best opportunities happen when everyone looks the other way, so keep stocks in the Consumer Discretionary space on your watchlist for 2024. As the next RBA announcement in regard to interest rates won’t occur until February, this gives them plenty of time to assess the impact of the current rate rises on our hip pockets and our spending habits this month.
So, while we don’t know what economic surprises Santa might leave under the tree, I know now is the time to get excited and be prepared for changing times in 2024.
What were the best & worst-performing sectors this week?
The best-performing sectors included Real Estate, up over 5 per cent, followed by Information Technology, up over 4 per cent, and Healthcare, up over 3 per cent. The worst-performing sectors included Utilities, up just under a per cent, followed by Consumer Staples and Industrials, with both up over a per cent.
The best-performing stocks in the ASX top 100 included Charter Hall (ASX:CHC), up over 13 per cent, followed by Allkem (ASX:AKE), up over 9 per cent, and Dexus (ASX:DXS), up over 8 per cent. The worst-performing stocks included IDP Education (ASX:IEL), down over 11 per cent, followed Bellevue Gold (ASX:BGL), down over 6 per cent, and Insurance Australia Group (ASX:IAG), down over 5 per cent.
What’s next for the Australian stock market?
Given that the All-Ordinaries Index has continued its rise from last week, my advice to be patient in the last few months has been well worth the wait. This week, the Australian market has risen over 2.6 per cent so far, and 9.5 per cent since the low on 30 October.
While this year has been a rollercoaster ride with the index rising and falling strongly, it was only a few weeks ago that the All Ordinaries Index indicated almost zero growth for the year.
Currently, the All Ordinaries Index is up over 5 per cent and looking strong, and while I think it will finish the year in positive territory, it would not surprise me if the index traded down on at least one of the next two weeks.
If that doesn’t occur, it will pull back for one or more weeks in January. This means you won’t need to jump into stocks on the FOMO (Fear Of Missing Out), instead, you can take some time over the next month to set yourself up for 2024.
Cheers and Merry Christmas to you all: For now, good luck and good trading.
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Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au
