Describing this year as distress for stock traders isn’t hyperbole. Europe war, post-COVID supply challenges, soaring interest rates, and inflation anxiety have seen ASX shares deteriorating. The S&P/ASX 200 Index has lost over 14% YTD.
Moreover, the decline would have been intense if mining stocks didn’t heighten the average.
Unfortunately, AMP Ltd.’s chief analyst Dr. Shane Oliver predicts massive risks of more plunges soon. Oliver added that it’s logical for investors to look at the COVID years (2020 and 2021) with liking memories.
He stated that risks remain skewed to near-term declines. Though investor confidence remains negative, we are yet to confirm a type of surge in the call/put option ratio that usually signals massive market bottoms.
For now, a potential intensification in the Russia-Ukraine war, Europe’s energy crisis, and more rate hikes might welcome a global recession.
If the United States market or ASX 200 breaks beneath their respective June lows, Oliver believes investors might witness another distressing 10% slump. So there’s a chance of more impending pain. However, what should we expect after that?
Encouragement for ASX Shares
Oliver trusts a light at the tunnel’s end for long-term players within the ASX shares. Though near-term risks for the shares stay high, market participants can maintain an optimistic stance on the shares on a twelve-month horizon.
Meanwhile, three reasons support Oliver’s bullish outlook. He said produce price inflation seemed to have peaked in Japan, China, the UK, and the US.
That corresponds to the pipeline inflation index, which maintains downtrends amidst declining prices and cost components, plunged commodity prices out of coal and gas, and reduced freight rates.
Second, the inflation slowdown will enable central banks to reduce the hiking past by 2022-end to (timely) prevent a colossal recession, according to Oliver.
Such a case in the United States would see Australia following suit as Aussie lags behind America by nearly six months as far as inflation is concerned.
Thirdly, the American stocks and ASX shares will have some seasonal drivers. Shares have historically soared during the year’s final quarter, with Santa Rally defining December.
Oliver added that U.S congressional elections would come in early November. Market players can expect post-election rallies.