We have come to the end of another financial year and it is at this time that I recommend investors take a look back at what has occurred in the markets over the last 12 months, as this will provide insights into where the opportunities will be in the next 12 months.
By June 30, 2021, the All Ordinaries Index had closed up 10.72% for the financial year and historically the Australian stock market achieves a yearly return of between 10 and 20% more than 40% of the time. Therefore, despite some of the volatility in the last 12 months, the Australian market performed pretty well.
If we drill down and look at the sectors that contributed to the performance, Financials rose 19.63% while Consumer Discretionary rose 19.36% and Communication Services rose 18.39% in the last 12 months.
On the flip side, Utilities was the worst-performing sector for the financial year down 8.32% while Information Technology was down 0.82% and Energy down 0.10%. Given this, it is not surprising to see that the best performing index was the S&P/ASX top 20 which rose 13.88%.
Moving forward, it is reasonable to assume that the Financials and Consumer Discretionary sectors may slow down over the rest of this calendar year while opportunities are likely to come from Utilities, Information Technology and Energy.
Of these, I like the Energy sector the best although I also believe opportunities will also come from the Industrial sector.
Looking at the stock level, the a2 Milk Company is down 46% this financial year although it is showing good signs of having turned the corner while AGL Energy and Beach Energy were both down more than 30% for the financial year.
While I believe it is a bit too early for both companies, I would certainly put them on my watch list.
Best and worst performing sectors this week
The best performing sector includes Communication Services up more than 2% followed by Consumer Staples and Materials, as both are just in the green for the week.
The worst performing sectors include Utilities down more than 4% followed by Information Technology down more than 2% and Industrials down more than 1%.
The best performers in the ASX/S&P top 100 stocks include Harvey Norman up more than 6% followed by IGO up more than 5% and Mineral Resources, which is also up more than 5%.
The worst-performing stocks include AGL down more than 10% followed by Afterpay down more than 7% while Lendlease is down more than 6%
What’s next for the Australian share market
Unlike the S&P 500, the All Ordinaries Index has so far failed to push higher to trade through its all-time high this week. Currently, the Australian market is trading where it was around four weeks ago and is looking like it has started the move down that I have been expecting. That said, it will be interesting to see where the market closes today.
A low close, especially one below last week’s low of 7467 points, will indicate there is a higher probability that the market will continue to fall next week with the fall likely to last for several weeks.
Again, we need to be prepared for anything as the last 12 months has certainly taught us that we need to expect the unexpected. While it is possible the Australian stock market could trade higher, I expect the fall to be orderly and in the vicinity of 8-12%.
That said, given that the market has been displaying a mind of its own, I recommend investors put stop losses on all their stocks in the event the fall is more severe.