Pay attention to Materials, Healthcare and Energy

By Dale Gillham. Published at Feb 22, 2019, in Market Wrap

It seems that every day we are hearing more bad news about what we can expect in Australia and world markets throughout 2019.

Economists and other experts are predicting more downside in our property market, while we are being told that China is slowing, and that the US market will crash. With all the noise, it’s no wonder investors are questioning what to do with their money.

One thing I know is that you can speculate all you like, but this does not mean something will actually unfold. When teaching traders and investors, I always recommend that they make their decisions based on confirmation, not speculation. In short, this means making decisions based on facts, and what you know and can confirm, not on what might happen.

This week we have seen world markets defy the negative sentiment with Asia leading the way. Both the Hang Seng and Shanghai Composite Index are up over 2.5 per cent, while the All Ordinaries Index and Singapore’s STI are both up over 1 per cent. In contrast, the Dow in the US and the FTSE in the UK are down slightly.

The good news for investors is that knowing what to do with your money does not require an economics degree. Rather than looking at what the world is doing, it is more beneficial to narrow your focus and just look in your own backyard. For those currently invested in the stock market, it is all about what your portfolio is doing, not what world markets are doing, which applies equally to property investors.

This week the Consumer Discretionary sector was up over 2.5 per cent, while the Finance, Energy and Materials sectors were all up over 2 per cent. In the top 50 stocks, we saw AMP recover over 8 per cent this week after experiencing heavy falls last month, and Wesfarmers and APA Group are up over 5 per cent. In the top 100 stocks, IOOF is up over 27 per cent and A2 Milk has risen over 15 per cent following reporting season. On the flip side, Cochlear was down over 13 per cent, while Bank of QLD and Coles were both down over 10 per cent.

So what do we expect in the market?
This week the market continued to rise, which I did not expect, particularly given that it has now been eight weeks since the last low on 20 December, with the All ordinaries Index rising nearly 14 per cent in that time. A rise of this nature is uncommon, and probability suggests that the longer in time and price that it continues to rise, the higher the probability of a much bigger fall when it does turn.

I still expect a pullback over one to two weeks to 6,000 points and possibly to around 5,800 points. If the market can hold above 6,000 points and start to rise again, it will mean it is quite bullish and that we should expect new highs in the coming months. Investors should be focusing their attention on the Materials, Healthcare and Energy sector for opportunities.

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 Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in book stores and online at www.wealthwithin.com.au

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