Stock Market to Make a New High in Early 2021

The economic rollercoaster for 2020 continued last week with the announcement that GDP had grown by 3.3 per cent in the September quarter, which officially ended the recession that only started at the end of the prior quarter. While this is great news, activity in the economy is still down on pre-COVID-19 levels and down 3.8 percent for the year to the end of September; so while the news is good, we are not out of the woods just yet.

Australia's economic rollercoaster

With the exception of Victoria, easing restrictions around Australia resulted in household spending rising by 7.9 per cent in the September quarter. There was also more spending on services, such as hotels, cafes and restaurants up nearly 10 per cent in the last quarter. Now Victoria is out of lockdown, it will be interesting to see if these economic numbers continue in the December quarter or whether the increased spending is just a short-term reaction.

Right now, the world is looking at Australia and how we have handled the pandemic from both a health and economic standpoint, however, the road forward may not be smooth sailing, as tensions continue to rise with our biggest trading partner China. These tensions bring both challenges and opportunities although it is still too early to tell how the Australian market and the economy will respond.

If Australia is to stay out of a recession and continue to grow, we need China’s help. That said, most Australians would want our Government to stand tough and protect our interests, as we need to look after our long-term future rather than sacrifice it for short-term gains. The Australian government also needs to continue to support and stimulate the economy, because while the economic news is good, it has been driven by stimulus packages and we are a long way from getting our economy to grow under its own steam.

What were the best and worst performing sectors last week?

The Australia stock market had a relatively flat week with the best performer being Materials up 5.26 per cent followed by Energy up 1.09 per cent and Information Technology up just 0.28 per cent. The worst performing sectors included Healthcare down 2.43 per cent followed by Utilities down 2.18 per cent and Consumer Discretionary down 1.11 per cent.

Looking at the ASX/S&P top 100 stocks, the best performers included Oz Minerals up 14.96 per cent followed by Fortescue Metals up 10.99 per cent and Rio Tinto 10.98 per cent. The worst performers included Magellan Financial down 5.64 per cent followed by Ansell down 5.06 per cent and Qantas down 4.53 per cent

What's next for the Australian share market?

In my previous report, I mentioned that the strong momentum in November would slow and earlier last week there was weakness in the All Ordinaries Index, resulting in it technically trading lower than the previous week. Therefore, it remains to be seen if the short-term weakness will continue this week with another move down in price.

Either way, there is nothing to be concerned about as I expect the Australian stock market will generally trade higher over the coming months to break above the previous all-time high of 7,289 set back in February of this year. Given this, the next major high is likely to occur sometime between mid-January and mid-February.

As I previously indicated, Energy, Materials and Financials were my preferred sectors moving into 2021, and over the past few weeks, these sectors have certainly been strong. I still expect more opportunities to come from these sectors over the next few months, therefore, I encourage everyone to stick to blue chip stocks rather than speculate on more risky stocks.

For now good luck and good trading.

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