Has the All Ordinaries Index Peaked for the Year?

To say that 2020 has been a big year so far for everyone would be an understatement, given that many of us have had to contend with fires, floods and, of course, the COVID-19 pandemic. If we combine this with the current uncertainty around the economy, it’s no wonder many Australians are feeling stressed and uneasy about their future.

Superannuation early release stimulus

In order to relieve some of the financial stress, the Government launched the early release of superannuation, which allowed individuals to take up to $10,000 of their superannuation prior to 30 June and another $10,000 after 30 June. According to APRA, 2.5 million people applied to take advantage of this before the end of the financial year, totalling approximately $19 billion, most of which has been paid out. Now that we have started the new financial year, these same people have the option to access the second tranche.

So, has this scheme achieved what it set out to do or is it creating a bigger problem for individuals in the future? I ask this question because several people I have spoken to who accessed the money did not need it, but wanted it simply because they do not like superannuation. While others have used the money to pay bills or reduce debt to give themselves some breathing space during the lockdown, but you have to ask if is this robbing Peter to pay Paul.

If you take $10,000 out of superannuation, then according to ASIC’s compound interest calculator your superannuation would be worse off by around $27,000, assuming a compounded growth rate of 5 per cent over 20 years. And, if you take the full $20,000, then you will be over $54,000 worse off in 20 years based on the same compounded growth rate. So, did the scheme do what it was supposed to do? We don’t really know the impact of that just yet but what we do know is that those who took the money will be worse off in retirement, which is not good.

What were been the best and worst-performing sectors last week?

As the All Ordinaries Index was down slightly, most of the sectors were down, although there were some positives with Information Technology up nearly 2 per cent, while Communication Services and Material were up just under 1 per cent. The worst-performing sectors included Industrials and Healthcare, which were both down over 4 per cent, while Consumer Discretionary was down 3.8 per cent for the week.

Looking at the ASX top 100 stocks, the best performers were all resource companies with Northern Star Resources up over 6 per cent, Fortescue Metals up nearly 6 per cent and OZ Minerals up 4.6 per cent for the week. The worst performers included Lend Lease and Aristocrat Leisure, as both were down over 9 per cent, followed by Vicinity Centres and Star Entertainment Group who both down nearly 9 per cent

What's next for the Australian share market?

Two weeks ago the market moved up solidly, indicating it would rise further but last week the All Ordinaries Index showed weakness, once again, as it traded down slightly and was down for the week by 2 per cent. Since 1 June, the Australian stock market has risen just under 3 per cent with continued signs of indecision between the bulls and bears with no side showing any dominance.

As I mentioned in my report last week, to prove that the market is bullish we need to see it trade above the high of 6,314 points set on 9 June. While I still believe the market will rise up over the next few weeks to trade around 6,600 points, right now the All Ordinaries Index is searching for its yearly high, which will likely occur this month. If the bears take hold of the market this week and push it down, then we may have already seen the high, and as such, we may need to reassess our targets, as further falls are likely.

Until there is more certainty about the direction of the market, I recommend investors remain patient, as there is still a probability the market could turn to fall away and test the March lows.

For now good luck and good trading.

Dale Gillham is Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.