Global financial market update

While things may look mixed in some regions, there are positive signs for growth assets. Next month may look a little different after the result of the election in the US.

Here’s a quick look at where we see the market going, particularly in relation to Australia and our portfolio strategies.

The Australian job market remains relatively solid, with unemployment dropping to 4.1% alongside a high participation rate of 67.2%. This indicates that more Australians are entering the workforce or actively looking for work, a strong foundation for our economy. Inflation is easing closer to the RBA target, though we’ll unlikely see interest rate cuts. Retail sales have grown slower recently, but overall consumer activity has been resilient despite elevated interest rates

The U.S. economy remains a key player, showing pliability with a strong services sector, a spike in new orders, and unexpected growth in non-farm payrolls. U.S. consumer spending has also surprised on the upside, supporting steady economic growth. While manufacturing is weaker, especially in China, both retail and industrial production in China exceeded expectations last month, hinting at potential economic recovery. The UK will likely ease rates further, with inflation falling to its lowest since April 2021. These global developments suggest that economic growth is mixed but with promise.

Given the cautious global growth environment, we’re currently optimistic about growth assets over the medium term. Inflation will likely stay moderately elevated but manageable, supporting credit markets and equities, though rate-sensitive sectors may see some pressure. The U.S. Federal Reserve and other central banks are in a tough spot as they balance the need for economic support with inflation concerns. This decision will significantly affect asset performance, especially for inflation-hedged assets like precious metals.

We anticipate short-term volatility in Australia due to global economic uncertainty and the U.S. election result. While this could impact some sectors, a growing trend of liquidity injections from central banks will likely provide a cushion for financial markets in the medium term.

Most likely scenario (75% Probability)
We expect a balanced yet cautious approach, with inflationary pressures moderating and the U.S. growing strongly. This environment favours growth assets but particularly emphasises sectors with more substantial earnings potential.

Downside scenario (11% Probability)
If global demand falters and inflationary pressures escalate, central banks may tighten conditions, which could pressure equity markets. In this case, we’d adjust towards defensive assets, focusing on capital preservation with higher cash allocations and sectors like healthcare and utilities.

Optimistic scenario (14% Probability)
Should inflation cool and global growth surpass expectations, this would create a supportive environment for growth assets. A pro-growth stance would mean low cash reserves and increased exposure to sectors benefiting from economic expansion, such as technology and cyclicals.

For now, our outlook is generally positive for growth assets in the medium term. We are also ready to adopt more defensive strategies in the short term if needed. As always, our goal is to navigate these market fluctuations with a balanced approach, keeping your long-term growth goals in mind.

Our goal is to help you focus on long-term growth and wealth preservation.

Cayle Petritsch, Director and Wealth Advisor, is a leading financial advisor. He has helped many Australians maximise their financial position and leverage opportunities leading to sustained and profitable wealth accumulation.

Contact Cayle today.