Just two weeks ago, market commentators were calling for the S&P/ASX 200 (ASX: XJO) (Index: AXJO) to hit 6,000 points.
Currently, at 5,634 points, that seems a world away.
With the economy expected to slow, here's why ASX 6000 might be further away than many investors realise…
Firstly, the big banks have been pummelled in recent times and they're shares carry a lot of weight in the ASX's top 200 stock index.
| 30-day return | Index weighting | |
| Commonwealth Bank of Australia (ASX: CBA) | -11.8% | 10.2% |
| National Australia Bank Ltd (ASX: NAB) | -10.6% | 6.4% |
| Australia and New Zealand Banking Group (ASX: ANZ) | -11.9% | 6.8% |
| Westpac Banking Corp (ASX: WBC) | -14% | 8.3% |
|
Sum of weightings: |
31.7% | |
As can be seen, although they've recently fallen hard, the big four banks account for over 31% of the top 200 by market weighting!
Unfortunately, none of the big banks present as good investments at today's prices.
Indeed, each of them could be set for further share price falls as slow credit growth and intense competition in the banking sector continues to take its toll on profit margins.
Buyer beware.
Then there's Rio Tinto Limited (ASX: RIO) and BHP Billiton Limited (ASX: BHP).
| 30-day return | Index weighting | |
| BHP Billiton Limited | 2.1% | 6.5% |
| Rio Tinto Limited | 2.6% | 1.6% |
| Sum of weightings: | 8.10% |
Combined BHP and Rio account for an additional 8.1% of the S&P/ASX 200.
Whilst BHP holds more diversified operations than Rio, iron ore is both companies' most lucrative commodity. The recent plunge in spot prices (which is being tipped to get worse before it gets better) will likely weigh the miners' share prices in the near-future.
Other heavy hitters in the market index include the two supermarkets giants, Wesfarmers Ltd (ASX: WES) and Woolworths Limited (ASX: WOW), Telstra Corporation Ltd (ASX: TLS) and Woodside Petroleum Limited (ASX: WPL).
| 30-day return | Index weighting | |
| Wesfarmers Ltd | -0.1% | 3.3% |
| Woolworths | -5.4% | 2.5% |
| Telstra Corporation | -2.2% | 5.1% |
| Woodside Petroleum Limited | -3.5% | 1.6% |
| Sum of weightings: | 12.6% |
Telstra, Wesfarmers and Woolworths could be expected to grow profits modestly over coming years but the first two (i.e. Telstra and Wesfarmers) currently appear slightly pricey, so any further share price appreciation might prove unsustainable.
Following Woolworth's results announcement earlier this week, whilst its shares could hold long-term value, it seems its turnaround strategy might take some time to play out.
Meanwhile, Woodside's share price could come under further selling pressure with analysts forecasting a drop in profits over coming years.
Altogether, these 10 companies account for a huge 52.3% of the S&P/ASX 200.
And given that most of them are fairly – if not over – valued at today's prices, ASX 6000 might not be so close after all.
Here's where the growth will come from…
For the S&P/ASX 200 to push meaningfully higher from here, it'll likely require a stronger performance from the other 47.7% of Australia's top stocks.
In my opinion, long-term investors should look to the blue chips of tomorrow, not today if they want to achieve strong returns from the Australian market over the next 10 years. The S&P/ASX SMALL ORDINARIES index (ASX: XSO) (Index: ^AXSO) includes Australia's top 300 companies except it excludes the top 100.
In the past five years, the ASX200 has returned 26% but the Small Ordinaries is actually down 7.2%.
A number of promising companies can be found in this index, including Collection House Limited (ASX: CLH), Altium Limited (ASX: ALU) and Technology One Limited (ASX: TNE).
