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Peter Switzer says he’s getting more defensive for his financial planning clients. On this week’s Switzer Show he ran through the headwinds he thinks are holding the ASX and the wider market back.
Peter opened the show with a question he says a lot of investors are putting to him: is this still a good time to be in the market? Peter says he’s currently looking to go more defensive.
“For my financial planning clients, I am becoming a little bit more defensive,” he said. “If someone started off as a 60/40, 60 per cent growth and 40 per cent defensive, and because of a really good performance over the last two or three years they have crept up to 80 or 90 per cent growth, I am sort of pulling them back towards 70 per cent or so, because there are a lot of headwinds out there at the moment. And also the headwinds seem to be outnumbering the tailwinds.”
Here are the pressures he named.
The Iran war and the oil price
“The Iran war continues, which has negative implications for oil prices, inflation and ultimately interest rates,” Peter said.
The chain runs from the conflict in the Strait of Hormuz right to the petrol bowser here in Australia and back up to the Reserve Bank on Martin Place. As we saw when the conflict first erupted, a war-premium on oil feeds into inflation, and so-called ‘sticky’ inflation is what keeps interest rates higher for longer.
Speaking of…
Interest rate rises are back on the table
“The second headwind is US and local interest rate rises are on the table,” Peter said. “And that is not good for stocks. Interest rate sensitive stocks struggle, especially tech and growth stocks, if they don’t have any AI implication or effect.”
On the chances of a local rate rise, “economists are split,” he said. “Are we at the peak? Is the RBA on hold, while others are saying no, there’s another rate rise to come. I think if a rate rise comes it won’t be great for the Aussie economy and it won’t be great for the stock market.”
He added that the local market needs help. “We really do need some stimulation, some help, particularly compared to what’s been going on in the US market.”
Profit taking in the US
“You’ve got profit taking, particularly in the US,” Peter said. “They’ve done fantastically well in the tech space, the growth space. And it doesn’t have to be a genius to work out that a bit of profit taking could happen.”
After a long run in the American growth names, some investors are banking gains, and that selling is part of what has taken the heat out of the market.
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