The Australian share market rose (+4.2%) during May to a new high point. That sounds great, and it is, but reaching an all-time high is fairly common – there have been 120 weekly all-time highs since 2000, which means the share market achieves a fresh record about once every 11 weeks.
Every sector delivered a positive return with Information Technology (+19.8%), Energy (+8.6%) and Communication Services (+5.5%) the best. The worst performers were the defensive sectors such as Utilities (+0.3%), Consumer Staples (+1.2%) and Healthcare (+1.6%).
The Commonwealth Bank hit a milestone value of $300 billion, and now makes up just under 12% of the entire Australian share market. The share price is up (+22.5%) this year which puts it ahead of Bitcoin (+12.3%), and well above the average of the other major banks. ANZ, Westpac and the NAB have averaged just (+4.3%) for the year to date.
After 3 negative months in a row, the World Share index was up (+5.4%), with the US share market increasing (+6.2%) for its best May performance since 1990. All other major global markets delivered strong returns with the UK up (+3.3%), Germany (+5.3%), France (+4.0%), Japan (+3.2%), China (+3.7%) and Hong Kong (+5.3%).
Work from home has finally pushed the US office market to an inflection point. For the first time in 25 years, more office space in the US is being converted or destroyed than created. Makes sense with office space vacancy rates in the US approximately 19%. Australia’s national office vacancy rate is 13%, with Melbourne’s at 18%, so work from home policies are clearly having a major impact here as well.
National house prices increased (+0.5%) in May, with the market now up (+1.7%) for the year to date. Every state recorded a gain in prices during May although Melbourne (-1.2%) and Canberra (-0.7%) are the only two States with negative growth over the past 12 months. The Australian Bureau of Statistics indicates that the average price of an Australian home has now reached $1 million, which is twice the cost of the average house in Britain apparently.
Unemployment remained steady at 4.1%, the inflation rate is 2.4% and the Reserve Bank of Australia cut interest rates to 3.85%. Current predictions indicate a 70% chance of another rate cut in July.
The Iron price fell (-0.5%), but the price of Oil (+4.1%), Gold (+1.7%) and Bitcoin (+7.4%) all climbed.
Geopolitics
With a couple of major conflicts going on at the moment, and the potential for things to get worse, now might be a good time to reflect on what has historically happened to share markets when war breaks out.
While most of us have a natural aversion to conflict, investment markets don’t operate on morality. History shows share markets have actually done very well from the chaos.
After Russia invaded Ukraine the US share market fell (-7.1%) initially, but a month later it was trading higher than it was before the invasion. The Australian share market was up (+5.9%) in the month following the invasion. The Israel-Hamas conflict which started on October 7, 2023 saw both US and Australian markets rise over the following week. In terms of larger conflicts, World War I and World War II saw the US share market up 115% over the combined periods of the conflicts.
While the human cost of a war is significant, it also leads to increased defence spending and innovation which is good for business. If history plays out the same way this latest conflict in the Middle East is unlikely to have any major impact on your retirement savings.
