Rudi's View | Jul 30 2025
In this week's Weekly Insights:
-A warning from Longview Economics
-Some sage advice from Franklin Equity Group
-Taking Stock Ahead Of August
By Rudi Filapek-Vandyck, Editor
A warning from Chris Watling, Global Economist & Chief Market Strategist, Longview Economics:
"Signs of froth continue to build in global financial markets (especially in the US).
"As has been widely reported, this has been one of the fastest recoveries by the US stock market from a major drawdown. From the April 8th closing lows, it took 54 trading days to recover the 19% loss during the pullback (i.e. based on closing prices). By way of comparison, post the March 2020 COVID sell-off it took 107 trading days from the March 23rd lows to reclaim the highs (from Feb 2020).
"As that froth has emerged, our SELL-off indicator has continued to build to higher levels. As of yesterdays close it had reached +36 (an unusually high level for this model). At +20, it warns of a high likelihood of a pullback (and signals that global markets are becoming overly exuberant)."
Some sage advice from Jonathan Curtis, Chief Investment Officer Portfolio Manager Franklin Equity Group:
"The market sees AI as a tech story. Smart investors see it as an everything story."
"In 1995, if you bought the PC leaders, you did well as an investor. But if you bought the smartest companies that built competitive advantage by digitizing their business early using the PC? You probably got rich.
"We believe today's AI moment is bigger. It's faster. And it's hiding in plain sight."
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Taking Stock Ahead Of August
At face value, the local share market hasn't paid much attention to corporate earnings over the three years past.
As also highlighted last week, corporate earnings in Australia have steadfastly fallen some -18% from their all-time record high achieved in FY22, but three consecutive years of net negative growth have not withheld the ASX200 from returning a net positive 21% over the period.
Net negative earnings in combination with rising share prices can only mean the average valuation has risen markedly, and this remains a sticky point for strategists and market commentators.
Trading on 19x-20x times next financial year's EPS forecast (forward-looking), and with the RBA hesitant to inject further stimulus into the domestic economy, it seems a lot is riding on positive surprises during the upcoming August results season.
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