March 2024

The main driver of these strong returns in share markets was the resilience in global economies, particularly in the United States, where unemployment rates remained low, real wages continued to grow, and corporate earnings were strong. Taken together, these indicators led investors to believe that the effects of the interest rate hikes seen over the past two years may not be as bad as first feared.

The Australian economy continued to grow modestly despite the impact on households of higher interest rates and higher cost-of-living pressures. Immigration (which added more workers to the labour pool, who also spent money) helped support the domestic economy, and low unemployment rates supported consumer spending.   

Outlook

While the global economy has been resilient and stronger than investors generally expected, positive returns across the last two quarters mean that the prices of shares and in credit markets reflect most of this upside. This puts a greater burden on companies to deliver against market expectations, providing scope for potential disappointment.

Central banks, including the Reserve Bank of Australia, have publicly stated that the path of future interest rates will depend on inflation outcomes.

Inflation in the services sector is proving stubborn, but inflation overall in most developed markets is trending in the right direction. This means that some central banks may have scope to ease rates later this year, which is expected to help assets like shares.

Our overall outlook for near-term market performance is cautiously optimistic, given expectations for slowing economic growth set against the hope of interest rate cuts.