Here's where the ASX 200 will finish the year: AMP

The ASX 200 is in the red today and trading almost 184 points lower than its all-time peak in April. What's next?

| More on:
Businessman using a digital tablet with a graphical chart, symbolising the stock market.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The S&P/ASX 200 Index (ASX: XJO) is experiencing a sell-off today, down 0.99% to 7,726.9 points at the time of writing.

This is a sizeable 2.3% fall from the benchmark index's all-time high set on 2 April at 7,910.5 points.

AMP has published its predictions for where the ASX 200 will be by the year's end, as well as its tips on how other asset classes, such as cash, bonds and property, will perform over the rest of 2024.

But first, let's recap what the ASX 200 has done so far this year…

The ASX 200 began the year with a rally…

The ASX 200 started the year with a bit of weakness over the first few weeks following an outstanding Santa Rally that saw it move 11.95% higher between 31 October and 31 December.

But that new year nervousness gave way to positivity from about mid-January, and the ASX 200 moved pretty steadily towards its April peak.

The fire in its belly during those few months was optimism that there would be several interest rate cuts in the United States, possibly beginning in the first half of 2024, due to falling inflation.

The expectation in Australia was for a cut in the later part of the second half of the year.

But things have changed.

US inflation surprised on the upside last month, which threw a bucket of cold water on the idea of rate cuts any time soon.

Australia's March inflation rate followed the same pattern, which has also cast doubt over whether there will be a rate cut here in 2024 at all.

In fact, some economists suggest there might even be a hike!

In a new blog, AMP chief economist Dr Shane Oliver says Australia is still at risk of a recession, and there is volatility ahead for the ASX 200.

How will the ASX 200 finish the year?

AMP expects the ASX 200 to return 9% this year and to rise to about 7,900 points by the year's end.

That's just shy of its April high and indicates more volatility ahead and a rougher road for the economy.

Dr Oliver points out that ASX 200 valuations were stretched following the Santa Rally, and uncertainty about the economy and the prospect for rate cuts means share price gains are likely to be constrained.

Dr Oliver said:

Easing inflation pressures, central banks moving to cut rates and prospects for stronger growth in 2025 should make for good investment returns this year.

However, with a high risk of recession, delays to rate cuts and significant geopolitical risks, the remainder of the year is likely to be far rougher and more constrained than the first three months were.

What about cash, bonds and commercial property?

In terms of other assets besides ASX 200 shares, Dr Oliver predicts:

Bonds are likely to provide returns around running yield or a bit more, as inflation slows, and central banks cut rates.

Unlisted commercial property returns are likely to be negative again due to the lagged impact of high bond yields & working from home.

Cash and bank deposits are expected to provide returns of over 4%, reflecting the back up in interest rates.

What will happen to house prices and the currency?

Dr Oliver said Australian home prices are likely to see "more constrained gains in the year ahead as the supply shortfall remains, but still high interest rates constrain demand and unemployment rises".

He added:

The delay in rate cuts and talk of rate hikes risks renewed falls in property prices as its likely to cause buyers to hold back and distressed listings to rise.

Dr Oliver said the Australian dollar is likely to rise to US 70 cents over the next 12 months as the overvalued American dollar falls.

He adds that, "… in the near term the risks for the $A are on the downside as the Fed delays rate cuts and given the still high risk of an escalating conflict in the Middle East".

What's going on in the Australian economy?

Dr Oliver said a recession is "probably the main threat" for the Australian economy today.

While the rate of inflation is still falling, retail sales came in lower than expected in March. In fact, in per capita terms, we have now seen seven straight quarters of declining sales, despite strong population growth. This indicates a serious tightening of the belts among Australians.

Dr Oliver also said the ABS Household Spending Indicator slowed to 2.1% year over year in March.

The trade surplus fell again in March due to lower commodity prices and stronger imports.

"Trade looks likely to be a big detractor from March quarter GDP growth, possibly by as much as 1 percentage point," Dr Oliver said.

AMP's take on the housing crisis

Building approvals rose less than expected in March, with the housing shortage worsening. Home values rose 0.6% in April — the 15th consecutive month for growth, largely due to the undersupply.

Dr Oliver commented:

So far this year approvals are running around an annual pace of just 154,000 dwellings, which is well below underlying demand for housing of around 250,000 dwellings a year on the back of record immigration levels and well below the objective of Australian governments to build 240,000 dwellings a year.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

A man looking at his laptop and thinking.
Technology Shares

ASX 300 fallen star down 62% in a year hits new 52-week low: Time to buy?

Here's my take on Weebit Nano shares today.

Read more »

Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett

2 reasons to buy Berkshire Hathaway shares today (and one not to)

Buying Warren Buffett's company isn't the obvious win that it used to be...

Read more »

A customer and shopper at the checkout of a supermarket.
Consumer Staples & Discretionary Shares

Why this could be the best ASX 200 consumer staples stock to buy in May

Here's why I think this stock is a great buying opportunity in May.

Read more »

Person holding Australian dollar notes, symbolising dividends.

With $1,000 to invest, should I buy ASX growth stocks or income shares?

Here’s my view on which investment Aussies should look at.

Read more »

Excited woman holding out $100 notes, symbolising dividends.
Dividend Investing

6% yield! I'm eyeing this ASX stock for my retirement portfolio in May

Here's why I love this stock for a retirement portfolio right now.

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.

Down 80% in a year, are Sayona Mining shares now a buy?

With shares down 80% in a year, will I be buying Sayona Mining stock now?

Read more »

a man with a wide, eager smile on his face holds up three fingers.

If I were Warren Buffett, I'd buy these 3 ASX shares

These 3 stocks could fit right into Warren Buffett’s portfolio

Read more »

Two men excited to win online bet
Investing Strategies

Invest in quality, not meme stocks

It appears the “meme stock” days are back.

Read more »