By Craig Turnbull, Active Super Chief Investment Officer
March 2024

The Australian share market has had a respectable start to the year, driven by stronger-than-expected company earnings and impressive leads from overseas indices.

Talk of a potential recession has receded and interest rates seem to have peaked with inflation falling and the overall economy showing resilience.

Industrial stocks have been the star performers during the reporting season in particular, retailers, technology, banks and insurers – with many companies hitting yearly highs.

All of these factors have underpinned the local bourse with the S&P/ASX 200 trading at a record level in the first quarter of calendar 2024 and gaining around 14 percent since November.

Overseas records

Australian shares have also been fuelled by stellar performances by US markets, driven mostly by the so-called Magnificent Seven – the seven biggest tech stocks in the US. There has been a broad rally with the Dow Jones Industrial Average and the S&P 500 both hitting record highs and the Nasdaq Composite testing its all-time peak.

Japan and Europe have also experienced their own market euphoria with the Nikkei 225 surpassing its previous record set three decades ago in 1989 and the Stoxx Europe 600 Index trading at a new peak.

Economic indicators

On the economic front, there are strong signs that Australia’s inflationary pressures are starting to ease. A steep fall in inflation also helped propel the local share market and led financial markets to reassess the future direction of interest rates.

The consumer price index fell in the December quarter as headline inflation struck a two-year low of 4.1 percent and underlying inflation was 4.2 percent. A year prior it was 7.8 percent.

The unemployment rate rose above 4 percent for the first time in two years as consumer spending eased and the economy started to slow following 13 interest rate increases by the central bank.

These rate rises had an impact on economic growth which was subdued in the final three months of 2023 as Australians refrained from spending, suggesting the high borrowing costs were starting to be felt. The economy expanded 0.2 percent in the December quarter for an annual growth rate of 1.5 percent.

Attention will now turn to the Reserve Bank’s next meeting on March 18-19 and any policy decision.