23 May 2024
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Albo’s troubles good for the economy and stocks

Peter Switzer
18 December 2023

Two big Albanese government unpopularity-related news stories are bound to be pluses for the economy and stocks in 2024. Regular readers know I’ve been predicting the December quarter rebound in stocks for some time and that it would be a precursor for a solid year for stocks in 2024.
I still stick with that forecast, especially given the US economy is getting on top of inflation. We now see the Federal Reserve boss, Jerome Powell, not being afraid to hint about interest rate cuts in the not-too-distant future. This has led to speculation about future cuts, as this from the AFR’s Joanne Tran shows: “Broker Barclays in a note led by economist Christian Keller now forecasts the FOMC to cut three times next year starting from June 2024, following its lower inflation forecast and chairman Jerome Powell’s “lack of push back on rate cut expectations”.
This positivity about inflation falling, interest rate rises being over and talk of cuts has led to speculation that here in Australia we could soon find the RBA has no further need to raise rates, and cuts also could show up sooner rather than later.
Of course, the run of economic data will be critical, with the biggies coming in next month. On 10 January, we see the monthly CPI for November. Seeing this trending down will be important. However, the critical ones come on January 31, when we see both the December monthly and quarterly CPIs. This is revealed ahead of the 6 February RBA rates meeting.
Good inflation news could mean no more rate rises. Then we’ll see both serious speculation about our future rate cuts, which should spark another leg up for stock prices.
Potentially helping this rosy outlook for the economy and stocks are the troubles for the Albanese government, which are bound to see ‘gifts’ thrown at the economy and voters.
Phil Coorey tells us that the latest Australian Financial Review/Freshwater Strategy poll shows “…Labor has lost its lead for the first time since winning power and would be pushed into minority government if an election were held today.”
The two party preferred situation shows it’s 50:50 and Peter Dutton’s popularity has risen to 39%, while Albo’s has fallen to 43%.
The two big concerns for voters are the cost of living and immigration. That’s where Treasurer Jim Chalmers will have a role to play in rescuing both his leader’s reputation and his own in 2024.
In the SMH this morning, Dr Chalmers bagged his critics who say he has failed to reform the economy but quickly threw in the likelihood that “...the government would consider further help on the cost of living in the May budget.”
While Peter Dutton claims the Treasurer caved into unions, which hasn’t helped inflation or rate rises, the Greens keep telling him to repeal the “stage three tax cuts”.
Dr Jim lists all that he has done but it’s not helping the party’s or the PM’s popularity. So, he’ll need to come to the rescue in the May Budget.
Tax cuts are a certainty and they’ll be needed, as the RBA’s 13 rate rises will be having full effect with most borrowers coming off those low interest fixed rate home loans that came out of the Covid period.
We also should hear much more talk about rate cuts, which will help the popularity of Labor and Albo.
More importantly for stock players and superannuation worries, a faster growing economy, helped by a generous May Budget, will assist the growth of company profits, which boosts the stock prices of those companies.
It will all come as other central banks cut rates as inflation falls. This will coincide with global economic growth spiking up, thanks to these lower rates.
This is why Albo’s loss/loss news today could be win/win for us, economy and stocks-wise. Whether the better 2024 news will help Albo is anyone’s guess, but it should make for an interesting election around May 2025.

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