Hopes for a Santa rally are dwindling amid renewed concerns about highly-priced technology stocks and substantial investment in artificial intelligence. The technology sector’s volatility emerged after chip-making giant Nvidia’s quarterly results briefly alleviated fears of an impending “AI bubble” burst. Nvidia shares plummeted despite an earlier surge, reflecting the market’s sensitivity to AI-related investments.
The turbulent session on Wall Street saw significant swings in the Nasdaq and Dow Jones indices, and the Cboe Volatility Index surged. Tracking this volatility, the S&P/ASX 200 opened sharply lower. Despite the uncertainty, some investors remain optimistic about the Australian market, anticipating a potential shift of funds towards Australia due to its stable economy. Atlas Funds Management is a financial services firm. Sonic Healthcare provides diagnostic services.
Hugh Dive, Chief Investment Officer at Atlas Funds Management, suggests that the market’s reaction is a risk-off adjustment to tech bubble concerns. He predicts a potential gain driven by consumer cash flow and dividend payouts. Dive believes the synchronized influx of cash from dividends paid in August and forthcoming bank dividends will bolster investor buying power, potentially fueling a rally towards the year’s end.
However, Lochlan Halloway, Equity Market Strategist at Morningstar, highlights obstacles to a sustained Australian market rebound. He emphasizes the need for substantial earnings growth and expresses caution regarding the banking sector’s high multiples amid a modest earnings outlook. Halloway suggests that for a lasting rally, Australia requires a fundamental improvement in its economic outlook, including cooling inflation and increased productivity. While the Reserve Bank of Australia has paused rate cuts, financial markets anticipate potential easing in the coming months.
