Will All Ords stay bullish in the first half of 2019?
I hardly need to remind you that 2018 was a rough year for the ASX.
We had heightened volatility, causing the market to react severely to news and announcements.
On top of that, high tension between the US and North Korea, along with the US China trade war, had big impacts on world markets.
So, what now? Will the same trend continue in 2019?
Looking back at how the market performed in 2018, you’ll see that it was quite a significant year, with the All Ordinaries Index (All Ords) ending down 7.4%. Heavy weighted sectors such as banks and materials dragged the market down, whilst other sectors like healthcare soared.
Out of the doom and gloom, we had a great Christmas and new year, with the ASX rising 320 points or 5.8% from the low on December 20.
So what actually happened in 2018?
The Royal Commission came into full effect late December 2017, pushing the big four banks down around 20% over the year, with the financial sector down 14.78%.
Health care (XHJ) was the top performer, up 17.3%. CSL was one of the best performers, and at one stage was up as much as 64%, but closed up 30% for the year, as health care was one of the sectors hit hardest from the market’s fall. Consumer Discretionary (XDJ) was next best, up 9.6% for 2018.
The worst performers were telecommunication down 25%, energy down 10.78% and utilities down 10.1%. Materials was down 2.2%, and with the financials and materials making up 47.8 of the S&P 200 (XJO), this tells us that they kept the market down.
Sectors I like in 2019 are materials and mining, health care and consumer staples. I also like financials, as good stocks don’t stay down forever. The banks have fallen since 2015, so history suggests another down year is highly unlikely, but at this point there is still a lot of uncertainty with the banks.
Looking at commodities prices, iron ore opened the year trading at around US$76 a tonne and traded sideways for much of 2018, closing at around US$71. Oil had a volatile year, opening at around US$60, reaching a high of around US$76.9, before falling heavily to close at around US$45. Gold began at around US$1305 and then ranged around 15% in price, before finishing 2018 slightly down at around US$1281.
What to expect on the ASX this year
Right now, the All Ords is looking bullish, but will it continue to rise through 2019?
Put simply, I would argue that the answer is yes. I expect 2019 to be a great year for Australian shares with the All Ords rising to around 6,200 points in the first half of the year.
For the Australian market to challenge the previous all-time high set prior to the GFC, we need to see it trade above the highs in 2015 and 2017 at around 6000 points for approximately 2-3 consecutive months.
I believe the low I was expecting is in and there is scope for more upside. I also believe the market will challenge the all-time high in either the second half of 2019 or the beginning of 2020. That said, for this to happen, both financials and materials need to move together, which has not been the case over recent years.
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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