The Australian market is in unchartered waters

The Australian market has flattened off the past few weeks after an initial rebound, pushed up by higher valuations.

According to BetaShares Chief Economist, David Bassanese while the S&P500 had fallen by over 30%, between February and March , it had increased by 34% with the rebound to April up to 30%.

Meanwhile forward valuations were at PE’s of 20, higher than what they were at their peak in February. These data points reinforce the volatile outlook for the market in the coming months as companies grapple with their earnings potential.

“Markets face a challenge to hold up in the face of weakening earnings,” said Bassanese. “Even for them to stay at current levels as earnings decline.”

He said despite declining infection and death rates in Australia, a winding back of restrictions and many Australians now receiving stimulus payments, there was still much for investors to be wary of given the unusual nature of the crisis.

“This situation is different because it is a backwards recession where we are starting at the work point.” The unemployment levels  that we reach in six months, will influence how the market responds.

While the economic stimulus has been in response this ‘undeserved recession’ or a recession force on us by the shutdown, the size and extend of the stimulus has been generous given the nature of the recession.

Finally, the resistance of the tech sector and the FANG stocks including Facebook, Amazon, Netflix, and Alphabet, these were the same stocks that led the global sector in the previous bull market and which now also are the least affected by the shutdowns.