Sydney financial planners advice that those who paid attention to the financial markets throughout January should be excused if shocked by the trends. Currently, the S&P/ASX 200 is now off 8% from its January 2022 high.
Hence, this article seeks to provide answers and present viable pointers on where the financial market is headed.
Valuation Expansion Thanks to Pandemic Response
At the beginning of 2020, the world was informed of an impending virus, which is closely related to the SARS, and this led to the closing of borders, cancellation of flights and vacations, lockdowns, and markets sold off thirty percent before taking on a new lease of life and becoming very aggressive.
The Sydney financial planners believe that the rise was caused by the country’s biggest lender’s rapid and far-reaching stimulus package, which gave out money to facilitate business growth. In addition, the central banks also lowered the interest rates close to nil, which made the masses hate fixed interest rates; hence, pumping all their wealth into higher-risk investments, for instance, stocks. Plus, the country’s biggest lending institutions went out of their way to buy bonds the entire time.
Central Banks Undoing the Measures Above
As we speak, there is a sell-off going on meant to undo the actions discussed above. According to Sydney financial planners, Central Banks are thinking about or have already started decreasing or halting the bond-buying plan. Also, they are thinking about raising the interest rates soon because of the growing inflation. As this is happening, they are slowly reducing the stimulus package.
The Price to Getting Multiple
The Australian market has been operating above its two-decade mean price to earnings since 2014. And the price to earnings is the snowballing of all caps in the ASX200 divided by the total earnings. But the experts point out that the COVID-19 Crash made the financial market drop below the average due to the issues mentioned above, and the anticipation of a rapid economic recovery made it soar higher. According to experts, the price to earnings has been dropping throughout 2021, courtesy of growing earnings. However, it has sustained the fall also in 2022; hence, leading to decreased prices.
Is It The Right Time To Buy Them Noting How Tempting They Are Getting?
Maybe. That is the answer, which the Sydney Financial Planners have provided regarding purchasing them. The valuation is back to the market before Corona struck, and there is a correlation between interest rates and valuations.
Final Thought
The prevailing sell-off has showcased fascinating buying opportunities, especially with the higher price to earnings. Nonetheless, the price to earnings is still high compared to two decades ago. But experts believe that a three percent interest rate is here to stay, something which will impact the financial budget, and it will not be a good thing for banks and other lenders.
