Caution warranted after strong market rally
The market’s turnaround from last year’s pessimism is a short-term reaction to a “perfect storm” of positive events – and investors should be cautious, says Pendal’s Alan Polley.
Much of the 15%+ gains in equities this year can be explained by near-term events such as investors closing out last year’s short positions, says Alan, a Pendal’s multi-asset PM.
There is less clarity about the medium-term prospects for shares. Investors should be watching corporate earnings, which is where the effect of higher rates on household spending and business activity will start to show.
So far results are mixed in the current ASX half-year reporting season.
“There’s downside risk on earnings. If earnings are further adjusted down, then equities have more downside risk than upside so there’s not much rationale for material gains at this point, especially after we’ve had markets rally 15%.
“We don’t see reason to have a lot of risk. Our signals are suggesting being reasonably neutral.”
