Category: Stock Market

Market sentiment is often discussed as a reason for broad market gains or losses in a given trading day.

While there are many measurable financial factors that feed into sentiment, such as economic growth, there are also softer factors like human emotions, and we can’t always count on them being rational!

In an article published on the ASX, two experts discuss how emotion plays into ASX shares investing.

How emotion drives the market

Karl Siegling, chief investment officer of listed investment company (LIC) Cadence Capital, says human emotions such as hope, fear, and greed can determine whether ASX shares become cheap or expensive.

He says:

The collective emotions of individuals, which is ‘the market’, play an extremely important role in investing.

The sooner that investors understand how important emotion is, and how likely we are as individuals to make decisions based on emotion, the sooner they will become better investors.

After a lifetime of investing, Siegling says it’s “a myth” that stock prices are based purely on value, saying:

Investors are always told to ‘buy low and sell high’.

So, we study finance or accounting at university and learn different techniques to value companies.

There’s this myth that all we need to do is learn the correct formula to value companies and we can lead a rich, healthy and wealthy life.

ASX shares investors need to understand that industry cycles can take years to play out. This means they could be waiting for a long time to see substantial price gains.

In the movies, everything in the share market happens very quickly. In real life, when you buy a share, you are buying part of a company.

Companies move much slower than people realise. When a business starts improving, that improvement can play out over many years.

It sometimes takes years for a stock to go from being unloved to being loved.

How emotion influences ASX shares trading decisions

Felicity Thomas, a senior private wealth advisor at Shaw and Partners, says emotion can drive rash investment decisions.

For example, the fear of missing out (FOMO) can prompt people to buy ASX shares that are rapidly rising instead of buying them based on fundamental analysis.

She says:

Emotional investing often leads to poor investment decisions, like buying shares during euphoric phases [for the market] and selling low during panic phases.

A lot of investors want quick wins but it is important to maintain a long-term perspective.

Despite short-term volatility, history has shown that the share market tends to grow over time.

Thomas says patience and a disciplined approach can help ASX shares investors stick to their investment plans.

As a young investor, Thomas only invested money she did not need for living expenses.

She also kept some cash on the sidelines.

There are pros and cons to keeping some cash in your investment portfolio.

Today’s high interest rates mean cash is certainly earning better returns than in previous years. However, inflation — which erodes the buying power of cash — also remains high.

The post Why emotion is key to becoming a wealthy ASX shares investor: Experts appeared first on The Motley Fool Australia.

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More reading

• Morgans names the best ASX 200 stocks to buy in May
• At 14 cents, has the Core Lithium share price become a bit of a joke?
• 3 reasons CSL stock is a great long-term investment
• 5 things to watch on the ASX 200 on Wednesday
• This ASX 200 gold stock can rise 30% and could be a takeover target

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Every month, analysts at Morgans pick out their best ASX stock ideas.

These are the ASX stocks that the broker thinks offer the highest risk-adjusted returns over a 12-month timeframe. Morgans notes that they are supported by a higher-than-average level of confidence.

Among its best ideas for May are the two ASX 200 stocks listed below. Here’s what the broker is saying about them:

Nextdc Ltd (ASX: NXT)

Morgans thinks that this data centre operator could be an ASX 200 stock to buy this month.

The broker is expecting another strong result from the company in FY 2024 and then expects more of the same in the coming years thanks to structural tailwinds. The broker explains:

NXT should deliver another good set of results in FY24 with some upside risk to guidance, in our view. Structural demand for cloud and colocation remains incredibly strong. NXT’s new S3 and M3 data centres are now open. Consequently, we expect significant new customer wins over the next six-to-twelve months (including CSP options being exercised). Sales should drive the share price higher. NXT looks comfortably on-track to generate over $300m of EBITDA in the next three to five years.

Morgans has an add rating and $19.00 price target on the company’s shares. Based on the current NextDC share price of $17.09, this implies potential upside of 11% for investors over the next 12 months.

Woodside Energy Group Ltd (ASX: WDS)

Another ASX 200 stock that Morgans has on its best ideas list is energy giant Woodside.

The broker believes that the market is undervaluing its shares at present and that this has created a buying opportunity for investors. Particularly given its high-quality earnings and healthy balance sheet. It said:

A tier 1 upstream oil and gas operator with high-quality earnings that we see as likely to continue pursuing an opportunistic acquisition strategy. WDS’s share price has been under pressure in recent months from a combination of oil price volatility and approval issues at Scarborough, its key offshore growth project. With both of those factors now having moderated, with the pullback in oil prices moderating and work at Scarborough back underway, we see now as a good time to add to positions.

Increasing our conviction in our call is the progress WDS is making through the current capex phase, while maintaining a healthy balance sheet and healthy dividend profile. WDS still has to address long-term issues in its fundamentals (such as declining production from key projects NWS/Pluto), but will still generate substantial high-quality earnings for years to come.

Morgans has an add rating and $36.00 price target on the ASX 200 stock. This suggests potential upside of 29% for investors. A 5.8% dividend yield is also expected.

The post Morgans names the best ASX 200 stocks to buy in May appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Wednesday
• 3 ASX dividend stocks to buy for an income boost
• Here are the top 10 ASX 200 shares today
• 4 ASX shares exposed to the ‘largest technological change ever seen’
• 5 things to watch on the ASX 200 on Monday

Motley Fool contributor James Mickleboro has positions in Nextdc and Woodside Energy Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Depending on who you ask, the recent movements of the Core Lithium Ltd (ASX: CXO) share price might be described either as tragic or as a joke (or perhaps even both).

For long-term shareholders of this ASX lithium stock, there’s probably not much to laugh about, considering Core Lithium has lost a brutal 48.15% of its value over 2024 to date alone. That’s going off the current Core Lithium share price of 14 cents.

Over the past 12 months, those losses extend to an even more savage 86.41%. The company is also down around 92% from its last all-time high of around $1.70 per share which we saw back in late 2022.

If one doesn’t own Core Lithium shares, this dramatic drop might make the idea of investing in Core Lithium today appear to be some kind of joke.

Indeed, imagine if one had told investors back in late 2022 when Core Lithium was going for close to $2 a pop, that the company was destined for a 14-cent share price. They would have probably thought you were joking.

Core Lithium’s woes have stemmed from a few factors. Lithium prices have dramatically come off the boul over the last 12 months. Producers like Core have had to battle with an excess of supply in the rechargeable battery ingredient.

Core Lithium’s flagship Finniss project was even forced to suspend production earlier this year thanks to falling prices.

It also didn’t help sentiment when Core Lithium posted a net loss of $167.6 million for the six months to 31 December 2023. A recent quarterly update has done nothing to sway opinions to date.

But is the current Core Lithium share price still a joke at its current levels?

Are Core Lithium shares laughably cheap or comically expensive?

Unfortunately for Core Lithium investors, at least one ASX expert doesn’t seem to think there’s any value to be found in this lithium stock right now.  Earlier this month, my Fool colleague looked at ASX broker Goldman Sachs’ views on Core.

Whilst Goldman predictably didn’t call Core Lithium shares a joke, the broker still gave the company a ‘sell’ rating, along with a 12-month share price target of just 11 cents. If realised, that would see Core shares dip down to new five-year lows.

Goldman cited valuation concerns compared to its peers as one of the reasons its analysts are bearish on Core. The brokers also suspect the company won’t be able to restart production at Finniss for at least the remainder of 2024.

Foolish takeaway

Whilst it might seem harsh to call Core Lithium shares a joke, this company’s experience over the past 12 months has been a textbook disastrous investment.

But if Core Lithium can recover from its recent lows and survive until the next rebound in lithium prices (whenever that may come), perhaps the joke will be on Core’s detractors and short-sellers. We’ll have to wait and see.

The post At 14 cents, has the Core Lithium share price become a bit of a joke? appeared first on The Motley Fool Australia.

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More reading

• These are the 10 most shorted ASX shares
• The Core Lithium share price sank 12% in April: Time to pounce?
• Why Betmakers, Brainchip, Core Lithium, and Megaport shares are sinking today
• Core Lithium share price tumbles to multi-year low following quarterly update
• These are the 10 most shorted ASX shares

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

CSL Ltd (ASX: CSL) stock has been a strong performer over the long term with a rise of more than 300% over the past decade. Is the ASX healthcare share a good buy today?

The company is the largest biotech company in Australia, but the question is whether it can continue growing profit at a decent pace to push CSL stock higher. There are three factors I’ll look at to decide if CSL stock is appealing.

Investing for growth

The business continues to put a lot of money into investing for the future.

For example, the new RIKA blood plasma donation system is meant to deliver a number of benefits. This system completes one collection in less than 35 minutes, on average, which reduces the donation time by around 30%. There is a rollout plan for the next 18 months for CSL’s centres. The individualised Nomogram will reportedly improve the average donation yield by around 10%. There should also be a reduction in biohazard disposable waste by between 10% to 15%. The system will also help improve productivity and help boost the gross profit margin.

CSL continues to invest hundreds of millions of dollars in research and development across its various segments. That spending can unlock the newest healthcare treatments or vaccines, creating a new earnings stream, and helping CSL stock. In the FY24 half-year result, CSL said its R&D spending increased from US$593 million last year to US$669 million this year.

New Tullamarine site

CSL recently gave investors a site tour presentation, which included references to the new Tullamarine property, a state-of-the-art flu vaccine production facility.

The broker UBS said the Tullamarine building is under construction for CSL Seqirus, which will produce flu vaccines in cell culture. The new site is being built using a variety of techniques and facility configurations that will allow for “best in class” operational facility.

CSL will benefit from digital monitoring and release of batches, which UBS reported was described as “substantially labour saving”.

Another benefit of this Tullamarine site will be better clean room security by placing machinery parts that need cleaning outside the clean environment.

The third benefit suggested by UBS was the ability to scale production at this facility as needed.

Good earnings growth expected

Estimates by UBS suggest the business is expected to see excellent earnings per share (EPS) growth over the next few years.

In FY24, owners of CSL stock are currently expected to see EPS of US$6.29 in FY24, US$7.45 in FY25, US$8.91 in FY26, US$10.69 in FY27 and US$11.86 in FY28.

If those estimates were to become reality, it would mean the CSL profit could grow by around 90% between FY24 and FY28. If that occurs, it would be very supportive for CSL stock in my opinion. Profit growth is one of the reasons why UBS has a buy rating on CSL stock with a price target of $330.

The post 3 reasons CSL stock is a great long-term investment appeared first on The Motley Fool Australia.

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More reading

• 3 excellent ASX 200 blue-chip shares to buy in May
• 3 ASX shares to buy now that could help you retire a millionaire
• 2 ASX shares to buy in May 2024 and hold for the next 10 years
• Top broker predicts 14% upside for CSL share price
• 5 ASX shares to buy for turbulent times

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended CSL. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

On Tuesday, the S&P/ASX 200 Index (ASX: XJO) raced higher in response to the Reserve Bank’s meeting. The benchmark index rose 1.45% to 7,793.3 points.

Will the market be able to build on this on Wednesday? Here are five things to watch:

ASX 200 expected to rise again

It looks set to be another positive day for the Australian share market on Wednesday following a relatively good session in the United States. According to the latest SPI futures, the ASX 200 is expected to open the day 19 points or 0.25% higher. On Wall Street, the Dow Jones rose 0.1% and the S&P 500 pushed 0.1% higher, but the Nasdaq eased 0.1% lower. This was the fifth session in a row that the Dow Jones has risen, which is its longest winning streak of the year.

Oil prices soften

ASX 200 energy shares such as Beach Energy Ltd (ASX: BPT) and Woodside Energy Group Ltd (ASX: WDS) could have a subdued session after oil prices edged lower overnight. According to Bloomberg, the WTI crude oil price is down slightly to US$78.46 a barrel and the Brent crude oil price is down 0.15% to US$83.20 a barrel. Oil prices fell despite Israel dismissing Hamas’ ceasefire.

Goodman Group update

All eyes will be on the Goodman Group (ASX: GMG) share price on Wednesday when the integrated industrial company releases its third quarter update. With the company’s shares hitting a record high on Tuesday, expectations clearly are high for Goodman. In February, management lifted its operating FY 2024 earnings per share growth guidance to 11% from 9%. Analysts at Citi see potential for another guidance upgrade.

Gold price falls

ASX 200 gold shares Evolution Mining Ltd (ASX: EVN) and Northern Star Resources Ltd (ASX: NST) could have a poor day after the gold price fell overnight. According to CNBC, the spot gold price is down 0.4% to US$2,322.5 an ounce. This was driven by routine price corrections after Monday night’s gains.

Buy Telstra shares

The Telstra Group Ltd (ASX: TLS) share price is great value according to analysts at Goldman Sachs. This morning, the broker has reiterated its buy rating and $4.55 price target on the telco giant’s shares. It said: “Following the underperformance of Telstra shares YTD (-8% vs. ASX200 +3%), alongside the recent downgrade in SPK FY24 guidance, we outline why we remain confident in our forecast $8.61bn in EBITDA (+$351mn yoy) for TLS in FY25E.”

The post 5 things to watch on the ASX 200 on Wednesday appeared first on The Motley Fool Australia.

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More reading

• Here are the top 10 ASX 200 shares today
• ASX 200 rocketing higher on RBA interest rate decision
• What does the latest 3G news mean for Telstra shares?
• This ASX 200 real estate stock has been flying ahead of tomorrow’s key update. Should you buy?
• Why the ASX 200 is predicted to leap higher in 2024 despite higher interest rates

Motley Fool contributor James Mickleboro has positions in Woodside Energy Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group and Goodman Group. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended Goodman Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Investors that are looking to add some gold exposure to their investment portfolio might want to consider the ASX 200 gold stock in this article.

That’s because if the team at Bell Potter are on the money with their recommendation, there could be some very big returns on the cards for investors.

Which ASX 200 gold stock is the broker bullish on?

According to a note from last week, the broker is tipping Regis Resources Ltd (ASX: RRL) as a top buy right now.

The note reveals that its analysts have reiterated their buy rating with an improved price target of $2.80.

Based on its current share price of $2.12, this implies potential upside of 32% for this ASX 200 stock over the next 12 months.

To put that into context, a $10,000 investment would become $13,200 by this time next year if Bell Potter’s recommendation proves accurate.

The broker also sees potential for further gains, noting that the gold miner could be an attractive takeover option for a larger player.

What did the broker say?

Firstly, let’s take a look at what the broker was saying about the ASX 200 gold stock’s recent quarterly update.

Its analysts note that production was softer than expected due to heavy rainfall. However, it is happy to overlook this as management has reaffirmed its FY 2024 guidance and the company is now benefitting from unhedged gold sales. It said:

RRL released its March 2024 quarterly report, which came in below our expectations as a result of the impacts of severe rainfall events during the quarter. RRL achieved production of 90.6koz at AISC of A$2,735/oz, vs BPe 104.1koz at AISC of A$2,081/oz and FY24 guidance 108.8koz at AISC of A$2,155/oz (midpoint basis). Tropicana was particularly hard hit, with attributable production dropping 40% from 38.8koz to 23.2koz qoq, as processing was forced to be suspended from 22 March to 1 April.

Despite this, FY24 guidance has been maintained at for production of 415koz – 455koz at AISC of between A$1,995/oz and A$2,315/oz. RRL enjoyed its first full quarter of unhedged gold sales and at quarter-end held cash and bullion of $186m (from $155m qoq) and drawn debt of $300m.

Why is it a buy?

Bell Potter believes the ASX 200 gold stock is undervalued at current levels. This is thanks to its unhedged gold sales, local operations, strong cash flow generation, and takeover appeal. It explains:

Earnings changes in this report are: FY24: +28%; FY25: +20% and FY26: +7% as our increased gold price forecast offsets the weaker than expected March 2024 quarter performance. RRL is the 5th largest ASX gold producer and the largest with an all-Australian asset portfolio. RRL offers unhedged exposure to the gold price and strong free cash flow growth over FY24 and FY25. These attributes also make RRL an appealing corporate target in the current M&A environment. Our NPV-based valuation is up 8% to $2.80/sh and we retain our Buy recommendation.

The post This ASX 200 gold stock can rise 30% and could be a takeover target appeared first on The Motley Fool Australia.

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More reading

• 5 things to watch on the ASX 200 on Tuesday
• Bell Potter names the best ASX 200 stocks to buy in May
• 5 things to watch on the ASX 200 on Tuesday
• Leading brokers name 3 ASX shares to buy today
• Here are the top 10 ASX 200 shares today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

April, July and December have tended to be the strongest months of the year for price growth among ASX shares, according to analysis by AMP.

Since 1985, Australian share price gains have averaged 2.4% in April, 2% in July, and 1.9% in December.

This compares to an average monthly gain for all months of 0.62%.

September is typically the weakest month for ASX shares, according to the analysis.

In a blog published on asx.com.au, AMP chief economist Dr Shane Oliver explains that share market seasonality is due to ebbs and flows in demand for ASX shares at different times of the year.

The typical pattern is for ASX shares to strengthen from about October or November through to July the following year, followed by weakness through to September. 

Relative weakness is often seen in May and June, which AMP interprets as representative of tax-loss selling.

That’s when investors sell poor-performing ASX shares before the end of the financial year so they can offset those capital losses against any capital gains made in the same financial year.

Do ASX shares follow the same pattern as US shares?

Dr Oliver says ASX shares perform in similar patterns to US shares.

Here is a chart documenting share price movements for ASX All Ords shares per month since 1985.

Here is the same information pertaining to S&P 500 Index (SP: .INX) shares in the US.

US share markets have historically been relatively weak around the September quarter, which is when the financial year finishes. So, this is when US investors would be doing most of their tax-loss selling.

Investors then start buying back into the market in the last quarter of the year.

There is a phenomenon called the ‘January effect’, when US shares have historically performed well on the back of new year optimism and a tendency for executives to invest their bonuses in more US stocks.

In recent years, anticipation of the ‘January effect’ has brought buying momentum forward to November and December.

US stocks tend to perform well between January and May, by which time new year optimism has faded.

Since 1985, November and April have been the strongest months for US shares, with average monthly gains of 1.9% and 1.6% respectively, according to AMP’s analysis.

This compares to an average monthly gain across all months of 0.83%.

August and September have historically been the weakest months for US shares.

Is ‘sell in May and go away’ still relevant in 2024?

Since 1985, the average total return (i.e, price rises and dividends) from US shares from the end of November to the end of May has been 90% higher than the return from the end of May to the end of November.

Globally, and in Australia and Asia, it has been three or more times bigger, according to AMP’s analysis.

Which ASX shares gained the most value in April?

As we said earlier, April tends to be a strong month for ASX shares, but not this year.

The S&P/ASX 200 Index (ASX: XJO) fell by 3% last month due to fears of delayed interest rate cuts.

But some ASX shares made spectacular gains.

Below are the top five risers of the month, according to CommSec data.

ASX 200 share	Share price growth in April
Emerald Resources NL (ASX: EMR)	20.8%
South32 Ltd (ASX: S32)	19.7%
Newmont Corporation (ASX: NEM)	18.6%
RED 5 Limited (ASX: RED)	18.4%
Silver Lake Resources Ltd (ASX: SLR)	17.7%

Foolish takeaway

Dr Oliver says “it’s not always reliable, but don’t ignore the time of the year”.

He says:

Seasonal influences can also be overwhelmed when contrary fundamental influences [such as market or company factors] are strong, so they don’t apply in all years. 

Seasonal patterns certainly shouldn’t dominate an investor’s strategy.

However, they nevertheless provide a reasonable guide to the monthly rhythm of markets that investors should ideally be aware of. 

The post Expert reveals the best and worst months for ASX shares appeared first on The Motley Fool Australia.

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More reading

• Why Goldman Sachs says these ASX 200 dividend stocks are buys in May
• 5 things to watch on the ASX 200 on Monday
• Top ASX gold shares to buy in May 2024
• Here are the top 10 ASX 200 shares today
• 9 ASX All Ords shares elevated to ‘strong buy’ status in April

Motley Fool contributor Bronwyn Allen has positions in South32. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Are you on the hunt for some new additions to your income portfolio this week? Well, I have some good news for you.

Listed below are three ASX 300 dividend shares that brokers have recently named as buys and tipped to offer generous dividend yields.

Here’s what you can expect from their shares them in the near term:

APA Group (ASX: APA)

APA Group could be an ASX 300 dividend share to buy this month according to analysts.

It is an energy infrastructure business with a portfolio of gas, electricity, solar and wind assets.

These assets have generated a growing stream of income over the last couple of decades. So much so, the company is on course to soon make it 20 consecutive years of dividend increases.

Analysts at Macquarie are feeling very positive on the company’s outlook and believe this trend can continue. The broker is forecasting dividends per share of 56 cents in FY 2024 and 57.5 cents in FY 2025. Based on the current APA Group share price of $8.55, this equates to 6.5% and 6.7% dividend yields, respectively.

Macquarie has an outperform rating and $9.40 price target on its shares.

GDI Property Group Ltd (ASX: GDI)

The team at Bell Potter thinks GDI Property could be an ASX 300 dividend share to buy right now.

Especially with the broker believing that the property company is well-positioned to provide investors with some very big dividend yields in the coming years.

The broker is forecasting dividends per share of 5 cents across FY 2024, FY 2025, and FY 2026. Based on the current GDI Property share price of 61.5 cents, this implies dividend yields of 8.1% for the next three years.

Bell Potter has a buy rating and 75 cents price target on its shares.

Rural Funds Group (ASX: RFF)

Another ASX 300 dividend share that get a big thumbs up from analysts at Bell Potter is Rural Funds.

As its name implies, it is a property company with a focus on rural properties. It owns a portfolio of high-quality assets across a number of agricultural industries. This includes orchards, vineyards, water entitlements, cropping, and cattle farms.

As for dividends, the broker is forecasting dividends per share of 11.7 cents in both FY 2024 and FY 2025. Based on the current Rural Funds share price of $2.01, this will mean yields of 5.8% for investors.

Bell Potter has a buy rating and $2.40 price target on its shares.

The post Brokers say these high yield ASX 300 dividend shares are top buys appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Apa Group, Macquarie Group, and Rural Funds Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Here are the top 10 ASX 200 shares today appeared first on The Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Block. The Motley Fool Australia has positions in and has recommended Block and NIB Holdings. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The S&P/ASX 200 Index (ASX: XJO) is soaring higher on the heels of this afternoon’s interest rate announcement from the Reserve Bank of Australia (RBA).

The benchmark Aussie index was up 0.8% at 2:30pm AEST. In the minutes that followed, the index rocketed up another 0.5% to currently be up 1.3% for the day.

This came after the RBA reported that it was holding Australia’s official interest rate steady at 4.35%. The interest rate paid on Exchange Settlement balances was also unchanged at 4.25%.

The gains posted by the ASX 200 are somewhat muted as the pause was widely priced into the markets. Though analysts have been upping the odds of a potential rate hike from RBA amid sticky inflation.

While the rapid series of 13 rate hikes instituted by the central bank since May 2022 has brought inflation down from the near 8% levels witnessed at the end of 2022, we’re not out of the woods quite yet.

Here’s what’s happening.

RBA interest rate announcement boosts ASX 200 shares

Commenting on the decision to keep rates on hold that looks to be buoying ASX 200 investor sentiment, the RBA board noted that while data shows inflation Down Under continues to moderate, it’s not coming down as fast as the RBA had been forecasting.

The consumer price index (CPI) increased 3.6% over the year to the March quarter. That’s down 4.1% from the increase recorded over the year to December. But it remains above the RBA’s target range of 2% to 3%.

Of potential concern for ASX 200 investors awaiting a rate cut, the board highlighted that underlying inflation was higher than headline inflation and declined by less. This was largely driven by services inflation, which the board says “remains high and is moderating only gradually”.

While higher interest rates have been working, the RBA said there’s continuing excess demand in Australia’s economy.

As for the labour market and wages, the board said:

Conditions in the labour market have eased over the past year but remain tighter than is consistent with sustained full employment and inflation at target. Wages growth appears to have peaked but is still above the level that can be sustained given trend productivity growth. 

What can investors expect ahead for interest rates?

Whether ASX 200 investors can expect interest rates to rise, fall or remain steady over the rest of the year remains highly uncertain.

“The economic outlook remains uncertain and recent data have demonstrated that the process of returning inflation to target is unlikely to be smooth,” the RBA said.

The RBA’s central forecasts are for inflation to return to its 2% to 3% target range in the second half of 2025 and to the midpoint of that range in 2026. 

The enduring services inflation was flagged as a key uncertainty. The board expects services inflation to ease more slowly than it previously forecast.

And, in case ASX 200 investors want any more uncertainty, the board added:

There also remains a high level of uncertainty about the overseas outlook. While there has been improvement in the outlook for the Chinese and US economies, and many global commodity prices have picked up, geopolitical uncertainties, including those related to the conflicts in the Middle East and Ukraine, remain elevated.

Reiterating the RBA’s resolution to return inflation to its target range, the board cautioned it believes it will be “some time yet” before this happens. The members added they “will remain vigilant to upside risks”.

So, could the ASX 200 be hit with another rate hike ahead?

Maybe.

According to the board:

The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out.

Invest accordingly.

The post ASX 200 rocketing higher on RBA interest rate decision appeared first on The Motley Fool Australia.

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• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today
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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.