Market update – where we are, what’s next and what it means for you

2022 has been a challenging period for the economy, with inflation, increasing interest rates, market correction and falling house prices all adding stock to the uncertainty many are feeling. 

As we switch on the evening news, pick-up a newspaper or open our social media, we’re met with stories of all that is wrong. So let’s break down what’s been happening and explore why it’s not as dire as some may have us believe. 

World trade and the lingering effects of a pandemic

World events such as the COVID-19 pandemic and ongoing war in Ukraine have been restricting trade as we’ve come to know it, items that were once easily accessible have become scarce or difficult to ship, resulting in increased costs – both in time and money. 

And although we’ve been living with the pandemic for quite some time, the impacts are still being felt in our everyday lives and in a multitude of areas such as healthcare, international relations, and our economy. We’ve seen businesses close over the past few years with the hospitality and tourism industries feeling it the most.. Despite the difficulties, we’re seeing the return of tourism – both on a national and global scale nearly back to pre-pandemic levels and we’re welcoming back international students, which will no doubt have a positive impact on our economy.

The share market 

Suffice to say it’s been a challenging time, we’ve seen a drop of roughly 15 per cent in the Australian share market (ASX 200) in the first 6 months of 2022, and on a global scale (S&P 500) this has fallen by 19 per cent. These downward turns have led to a volatile market with lower returns, particularly for the technology sector with household names such as Netflix and Apple falling even further (70 per cent and 23 per cent respectively). 

However, in the last month we have seen a ‘recovery’ of sorts leading into reporting season. Whether this is the start of a recovery; it's too soon to say, however recent US inflation data is showing that inflation in the US has slowed. Consumer confidence will return once there is some stability.

Inflation 

Although it’s at its highest level since the early 1990s, The Reserve Bank of Australia (RBA) is committed to and has prioritised the return of inflation to the 2-3 per cent range over time. 

At a figure of 6.1 per cent over the year to the June quarter, Australian Treasurer Jim Chalmers, has stated inflation is likely to peak at 7.75 per cent by December and then decline back towards the target range.

Despite the staggering figures, the outlook is not dismal. The economy is expected to continue to grow with employment, consumer spending and an improvement in business anticipated by the RBA.  

The property market correction 

The property market is currently in a phase of ‘correction’. We’re seeing decreasing house prices and increasing interest rates, which have understandably made some question the future of their property assets. 

We’ve experienced four consecutive interest rate rises bringing the cash rate to 1.85 per cent, with some speculating that we’ll see this pattern continue for the remainder of the year. These increases mean that those with a variable-rate mortgage are seeing their monthly repayments continuing to rise. 

According to the Australian Prudential Regulation Authority (APRA) we’re seeing owner-occupied lending slow (9 per cent down to 8.6 per cent), but interestingly we’re seeing investor loans grow with a 6.4 per cent increase observed. APRA attributes this lift to rising rents, low vacancy rates and the return of international students and other migrants, which is expected to see the demand for rental properties increase – fantastic news for those who own investment properties.  

What’s next? 

While there’s been a lot of changes that have led some to be less than optimistic, the good news is that July was a better month for investors with positive returns noted across various asset classes. 

Markets will continue to be driven by different factors as the year progresses. As always it's beneficial to stay aware and remain in touch with what is happening. At Shape we will endeavour to update you on the latest market news.