Category: Stock Market

The S&P/ASX 200 Index (ASX: XJO) is continuing to sell off over this Wednesday’s trading session. At the time of writing, the ASX 200 has lost another 1.12% so far to around 6,611 points. 

But let’s dive a little deeper into these markets moves and take a look at the ASX 200 shares that are currently topping the share market’s trading volume charts, according to investing.com.

The 3 most traded ASX 200 shares by volume this Wednesday

Telstra Corporation Ltd (ASX: TLS)

Blue-chip Telstra is our first company to take a look at today. So far this Wednesday, a hefty 16.73 million of this ASX 200 telco’s shares have changed owners. There hasn’t been any news or announcements out of Telstra so far. However, the Telstra share price is doing something very interesting.

The telco’s shares are currently bucking the market and are up a healthy 2.4% at $3.84 each. Thus, it is probably this outperformance and healthy rise that is resulting in so many shares flying around the markets today.

South32 Ltd (ASX: S32)

Diversified ASX 200 mining company South32 is next up this Wednesday. So far today, a sizeable 16.9 million South32 shares have been bought and sold on the share market. We haven’t had too much out of this company either, save for a share buyback notice which could be boosting volumes alone.

But South32 has also taken quite a tumble. South32 shares are currently down by 3.01% at $4.35 each. So it’s probably a combination of the buyback and this share price fall that is resulting in the company’s presence on this list today.

Pilbara Minerals Ltd (ASX: PLS)

ASX 200 lithium share Pilbara Minerals is our third, final, and most traded ASX 200 share so far today. Over this Wednesday’s trading session, a whopping 20.99 million Pilbara shares have swapped hands as it currently stands.

In this case, it seems another share price fall is responsible here. Pilbara shares have lost a nasty 4.17% of their value so far today at $2.07 a share. This lithium stock is now down almost 20% over the past month alone. No wonder so many shares are bouncing around on the ASX boards.

The post Here are the 3 most traded ASX 200 shares on Wednesday appeared first on The Motley Fool Australia.

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More reading

• 3 ASX 200 shares stretching higher on Wednesday
• Investing should be boring: fundie
• Will the share market recover in 2022?
• How long do ASX bear markets last on average?
• This fund manager is optimistic on these 2 leading ASX 200 energy shares

Motley Fool contributor Sebastian Bowen has positions in Telstra Corporation Limited. 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 positions in and has recommended Telstra Corporation Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The James Hardie Industries Plc (ASX: JHX) share price is down another 6% on Wednesday, sinking the stock to its lowest mark in 52 weeks.

At the time of writing, the company’s shares are $30.63 apiece, 5.67% lower than yesterday’s close. It takes James Hardie’s losses to almost 45% this year to date.

In the broader market, the benchmark S&P/ASX 200 Index (ASX: XJO) has slipped a further 47.5 basis points today, a 0.71% loss.

James Hardie’s share price plunge comes amid reports the company is facing legal proceedings in the Federal Court.

What’s up with the James Hardie share price?

The company has released no market-sensitive news today.

However, The Australian reported James Hardie is facing allegations in the Federal Court after the company was accused of “repeatedly [failing] to investigate unethical or unsafe behaviour”.

A former manager of its Australia Pacific (APAC) division has reportedly started the legal proceedings. It’s reported the case centres around James Hardie’s internal handling of management disputes.

In broader terms, the company’s shares have been trending down since trading resumed in the new year.

Its current price of $30.83 is a long way from its 52-week high of $56 back on 4 January.

It traced lower despite showing some signs of revival, first in February and then again in March. Since then, it’s staggered consistently lower.

In the last 12 months, the James Hardie share price has slipped more than 32% into the red.

The post Why did the James Hardie share price just hit a new 52-week low? appeared first on The Motley Fool Australia.

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More reading

• 3 ASX 200 shares defying Friday’s falls to leap higher
• ASX shares paid out a record $98b in dividends in the 12 months to March. Which are the star performers?
• Why is the James Hardie share price surging higher today
• Why Brambles, James Hardie, Seek, and Sezzle shares are sinking
• ASX 200 midday update: Brambles takeover talks end, resources shares charge higher

Motley Fool contributor Zach Bristow 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.

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Right now is a nerve-racking time to be an investor. Whether new to the game or well-versed, many are pondering: will the share market recover in 2022?

If there was such a thing as a haunted share market house, the current situation is possibly as close as it gets to a ride full of all the hair-raising antics sure to leave even the most seasoned participants a little unsettled.

The S&P500 is officially in a bear market and the S&P/ASX 200 Index (ASX: XJO) swiftly entered correction territory yesterday.

As a result, anyone that has invested in the broader market since February 2021 is wondering when their brave-faced buying might pay off.

What does history tell us?

Those that have walked around the investing block before will have heard the old Mark Twain saying, “History doesn’t repeat itself, but it often rhymes.” It embodies the heavily-used disclaimer by financial professionals: past performance is not indicative of future results. However, it can always serve as an informant for the approximate bounds of what we might expect.

The ASX is not yet in a bear market by definition, as depicted below. It would need to fall a further 9.6% to 6,018.7 points before following in the footsteps of the US market. If it were to reach this milestone, historical data from Bloomberg (between 1969 to 2018) suggests the average time to recover is 13 months.

On the other hand, the Australian share market might be able to avoid the grizzly bear market fate thanks to its overweight exposure to miners. ASX-listed giants such as BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), and Fortescue Metals Group Limited (ASX: FMG) have all managed to stay in the positive so far this year.

Although, whether these companies continue to hold up in the face of high inflation and increasing interest rates would be mere speculation.

Will the share market recover this year?

You might be saying, “But Mitchell, the history lesson still doesn’t answer the all-important question.” And you would be completely right. We all want certainty, we all want guarantees, and we all want the share market to transform into a bull again.

But I think legendary investor and Bridgewater Associates founder Ray Dalio put it best, “He who lives by the crystal ball will eat shattered glass.” In other words, trying to predict when the share market will recover might be more harmful than helpful.

Our very own Motley Fool Australia chief investment officer, Scott Phillips is also no proponent of fortune-tellers, stating:

So, the honest answer is no-one knows the future. Some pretend they do. Some of those people probably even manage to fool themselves. But no-one knows for sure. Here’s what I do know: The ASX has never yet failed to regain — then surpass — a previous high. What does that mean? Well, if (and, I think when, but no promises) the ASX gets back to its previous highs, there’s decent upside from here just to get back to that point, then more again if (and again, I think when) it goes higher.

However, Phillips highlighted the potential advantages of sticking with your guns in the meantime, saying:

The problem is that our human nature doesn’t predispose us to be good at waiting — or to be calm while we wait. So, it can be tough. And there’s no getting around that. But historically speaking, it’s been very worthwhile. And my money — literally — is on history repeating itself. When? I don’t know. Nor does anyone else. But I think it’ll happen. And when it does, I expect to be glad I just kept my head down, kept investing, and waited patiently for the market to recover.

So, there may not be a concrete answer as to when the Australian share market will recover. But, if the future holds any resemblance to the past, there’s a good chance the tides will turn eventually. Whether next week, next month, or next year. When those tides turn is the quadrillion dollar question that — if everyone is being honest — nobody truly knows.

The post Will the share market recover in 2022? appeared first on The Motley Fool Australia.

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More reading

• How long do ASX bear markets last on average?
• This fund manager is optimistic on these 2 leading ASX 200 energy shares
• ASX 200 midday update: ResMed’s US$1bn acquisition, tech shares continue to sink
• Why I think these 2 ASX 200 dividend shares offer great buying right now
• Warning: 1970s inflation is returning. Expert reveals what to do

Motley Fool contributor Mitchell Lawler 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.

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The Bitcoin (CRYPTO: BTC) price is right about where it was this time yesterday.

At the time of writing the world’s top token by market cap is trading for US$21,144 (AU$30,711). That’s down 54% this calendar year and down a painful 68% from the 10 November record high.

But potentially of more concern to crypto investors, the Bitcoin price has now slipped below its realised price.

What is the realised Bitcoin price and why does it matter?

Blockchain data analytics firm Glassnode tracks the average price of all Bitcoin in virtual circulation, an indicator called the realised price.

Currently, the realised Bitcoin price stands at US$23,430, almost 10% above today’s price. And with the majority of holders now underwater, the leading crypto could come under new selling pressure.

According to strategist at Glassnode (courtesy of Bloomberg):

The current bear market is now entering a phase aligned with the deepest and darkest phases of previous bears. The market, on average, is barely above its cost basis, and even long-term holders are now being purged from the holder base.

Brian Nick, chief investment strategist at global investment manager Nuveen, cautioned investors about the big potential moves in the Bitcoin price.

“Bitcoin trades like a penny stock. There’s all kinds of reason to think that once it starts falling quickly, it can continue to fall. If it can move 20% in two days, it can move another 20% the next two days,” he said.

Why are crypto markets under pressure?

It’s not just the Bitcoin price that’s down sharply this year.

The entire crypto-sphere has come under selling pressure.

That’s largely been due to interest rates heading higher across much of the globe for the first time in a decade. With expectations of significantly more rate hikes to come, investors have been lightening their holdings of risk assets, like high growth tech shares and cryptos.

The Bitcoin price and cryptos more broadly have also been impacted by news that crypto lender Celsius Network has halted withdrawals this week. Investors fear that Celsius may not be able to make good on all of its high yielding products.

The post What is the realised Bitcoin price and why does it matter? appeared first on The Motley Fool Australia.

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More reading

• 3 reasons Bitcoin, Ethereum and Solana just hit their lowest levels this year
• Why is the Bitcoin price crashing 16% today?
• Could cryptos be facing an upcoming wave of institutional selling?
• What crypto winter? It’s always sunny with Solana
• Is Bitcoin still worth buying to diversify your ASX share portfolio?

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 positions in and has recommended Bitcoin. The Motley Fool Australia has positions in and has recommended Bitcoin. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The rather dire performance of the S&P/ASX 200 Index (ASX: XJO) over this week so far has understandably shocked and dismayed many investors. Over just the past one-and-a-half trading days, the ASX 200 has gone from 6,932 points to the current 6,667 points. That’s a fall of more than 4%. With such steep falls, many investors might assume the ASX is now in a bear market.

But this assumption would be incorrect (at least for now). As we covered yesterday, for bear market conditions to be met, we first need a stock market crash. That entails a fall of 20% or more from a market’s most recent high. The ASX 200 last peaked back in August last year.

That was when the ASX 200 hit 7,632.8 points. Although we have fallen considerably from that lofty high watermark, the ASX’s falls from there are still only sitting at just over 12.6%. So we aren’t quite in bear market territory yet.

But, like many things, a market crash is only obvious in hindsight. So we could well be in the first stages of one (not to sound overly pessimistic). If we do end up seeing the ASX 200 in a bear market, how long would it last?

How long do bear markets last?

Well, there’s no way of predicting this with certainty. However, we can look at how long other ASX 200 bear markets have lasted for some idea of what could be in store.

Of course, the most recent ASX 200 bear market we’ve seen was the COVID crash of 2020. Since this was the first bear market ASX investors had seen for almost a decade, it is the one that many investors now hold as the standard.

But the COVID crash of 2020 was an exceptionally short bear market (although still sharp). It saw the ASX 200 go from the peak of 7,197.1 points that we saw on 20 February 2020, to a low of 4402.5 that was hit on 23 March that year. That was a painful fall of 38.83% over those four weeks or so. But after two months or so, it was all over. The ASX 200 had risen by 20% off of its lows by early June 2020, and the bear had been replaced with a bull.

That doesn’t sound too bad in hindsight – two months to tip everything you own into shares, only to see them explode in value afterwards. But if all market crashes were over in two-and-a-bit months, then we probably wouldn’t be so scared. So let’s go back to the global financial crisis of 2007 and 2008.

Before the GFC hit with all its force, the ASX 200 peaked back in November 2007. But it took until March 2009 for the market to find its bottom. That’s almost 18 months of waiting for the share market to stop falling – nasty stuff. It was only in May 2009 that the bear market was over. But, as they say, waiting is the hardest part.

What is your average bear?

The point is that the past two decades have seen a bear market that has lasted just over two months, and a bear market that lasted almost 18 months.

But what is the length of an average bear market? According to analysis by fund manager Zurich, ASX shares have seen 11 bear markets since 1970. The average duration of these bear markets was 12 months, with an average market loss of 35.8%.

But consider this. The ASX 200 has also seen 11 bull markets over this period. And the average duration of these bull markets was 46 months (not including the most recent, post-COVID crash bull run). The average return for these bull markets was 130.1%.

So we know that the ASX 200 is in bull market territory most of the time. And we can also gather that the losses of the bear markets don’t even come close to cancelling out the gains of the bull markets. Something to keep in mind during these difficult times for ASX 200 shares.

The post How long do ASX bear markets last on average? appeared first on The Motley Fool Australia.

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More reading

• This fund manager is optimistic on these 2 leading ASX 200 energy shares
• ASX 200 midday update: ResMed’s US$1bn acquisition, tech shares continue to sink
• Why I think these 2 ASX 200 dividend shares offer great buying right now
• Warning: 1970s inflation is returning. Expert reveals what to do
• 5 things to watch on the ASX 200 on Wednesday

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.

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In afternoon trade, the S&P/ASX 200 Index (ASX: XJO) is on course to record another decline. At the time of writing, the benchmark index is down 0.4% to 6,660.3 points.

Four ASX shares that are not letting that hold them back are listed below. Here’s why they are pushing higher:

Computershare Limited (ASX: CPU)

The Computershare share price is up 3% to $24.27. This appears to have been driven by a broker note out of Ord Minnett. Its analysts have upgraded the administration services company’s shares to an accumulate rating with a $26.00 price target. The broker believes that rising interest rates will be a positive for Computershare.

Lithium Plus Minerals Ltd (ASX: LPM)

The Lithium Plus share price is up 36% to 40 cents. This morning the lithium explorer advised that its mining management plan for the flagship Bynoe Lithium Project has been approved. As a result, the company has appointed Darwin-based drilling contractor, GeoDrilling, to undertake an initial program of approximately 10,000 metres of Reverse Circulation drilling.

Lynas Rare Earths Ltd (ASX: LYC)

The Lynas share price is up 4.5% to $8.91. The catalyst for this appears to have been a broker note out of Macquarie. This morning it reiterated its outperform rating and $12.80 price target on this rare earths producer’s shares. This was in response to the company’s update on Tuesday, which revealed that it has been awarded a US$120 million contract by the US government to build a heavy rare earths facility.

ResApp Health Ltd (ASX: RAP)

The ResApp share price is up a further 6% to 17.5 cents. This digital health company’s shares have been racing higher this week after pharmaceutical giant Pfizer improved its takeover offer. Pfizer agreed to increase its offer from 11.5 cents per share in cash to either 14.6 cents or 20.7 cents per share. The ultimate price will depend on the results of a clinical validation study, which investors appear to believe will be successful.

The post Why Computershare, Lithium Plus, Lynas, and ResApp shares are pushing higher appeared first on The Motley Fool Australia.

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More reading

• Guess which ASX lithium share surged 56% higher today
• ASX 200 midday update: ResMed’s US$1bn acquisition, tech shares continue to sink
• 3 ASX 200 shares that avoided today’s sell-off
• Here’s why the ResApp share price is rocketing 50% today
• Why Australian Clinical Labs, Lake Resources, PolyNovo, and ResApp are rising

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.

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The Commonwealth Bank of Australia (ASX: CBA) share price is in negative territory again today.

At the time of writing, shares in Australia’s largest bank are edging 0.45% lower to $90.79.

While slightly down on Wednesday, it’s worth noting that CBA shares have lost more than 15% since 1 June. This comes off the back of eight consecutive market days in the red.

For context, the S&P/ASX 200 Financials (ASX: XFJ) is also heading south on Wednesday, down 0.21% to 5,728.9 points.

Shares in other major banks, National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group Ltd (ASX: ANZ), are shedding 0.86% and 1.11%, respectively.

The Westpac Banking Corp (ASX: WBC) share price is also suffering today, down 1.1% during early afternoon trade.

Why are CBA shares faring better than the other banks?

A catalyst for CBA shares performing better than its peers today could be the attractive levels it’s currently trading at.

According to ANZ Share Investing, UBS lifted its price target on CBA shares last week by 5% to $105.00 per share. This represents an upside of 15.6% based on its current share price.

Furthermore, CBA provided an update on its $2 billion buyback program.

The bank bought back 476,595 shares between $88.92 and $91.20 per share on the previous day. This is a considerable difference to when CBA purchased 1,883,068 of its shares the day before at more than $102 per share.

Previously, management noted that the goal of the buyback program is to reduce surplus capital and increase shareholder value. Once completed, the capital management program is expected to reduce the bank’s CET1 ratio to 11.4%.

CBA share price snapshot

Adding to the already tough month it has been, the CBA share price is down 12% over the last 12 months.

When looking at year-to-date, its shares are down 10%.

Based on today’s price, CBA commands a market capitalisation of roughly $155 billion, with 1.7 billion shares on issue.

The post What’s going on with the CBA share price on Wednesday? appeared first on The Motley Fool Australia.

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More reading

• ASX 200 bank shares tumble: Citi says time to buy
• The CBA share price is down 5%. Should investors jump on this?
• Waiting to start investing in ASX shares? Today could be a brilliant time to do it
• Here’s the CBA dividend forecast through to 2024
• ASX 200 has its worst week in two years

Motley Fool contributor Aaron Teboneras 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 recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The CSL Limited (ASX: CSL) share price is down 1.5% at $260 per share in afternoon trade on Wednesday. It has slipped 5% this week, having fallen from $271 at Friday’s market close price.

Meanwhile, the S&P/ASX 200 Health Care Index (ASX: XHJ) has fallen 3% in the same time. The correlation between the two is seen below.

CSL standout healthcare pick: fund manager

CSL’s management in particular impresses Sage Capital fund manager Sean Fenton. He said that whilst there are plenty of great Aussie healthcare companies available, CSL is his pick.

“Healthcare is really tough, in the sense that there’s actually a whole bunch of really great Australian companies that have been very successful in healthcare,” he said, speaking to Livewire’s Buy Hold Sell.

“[I]t’s hard to go past the biggest one, CSL, who have grown, exceptionally, in their area,” he told Livewire.

The fund manager went on to comment on several of CSL’s feats over the years. He noted its business strategy successfully diversified away from IVIG and haemophilia products into niche categories.

That’s led to “a lot of value add” to the CSL share price he said.

And they continue to do that. Continue to reinvest, grow their market. Yeah. Their recent acquisition hasn’t completed, Vifor, I think, will also prove to be quite an effective one. So, yeah. Really hard to go past them.

Analysts appear constructive too according to the data. Around 87% of brokers say it’s a buy, with the remaining 13% presently saying it’s a hold, according to Bloomberg data.

In the last 12 months, the CSL share price has slipped 13% into the red, or 10% this year to date.

The post Down 5% so far this week, is the CSL share price a buying opportunity? appeared first on The Motley Fool Australia.

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More reading

• Should you buy these top blue chip ASX 200 shares after the market selloff?
• Why is the CSL share price defying today’s sell-off?
• Top brokers name 3 ASX shares to buy today
• 2 ‘quality defensive’ ASX shares to see out rising interest rates: Wilsons
• The CSL share price has at least 20% upside: top brokers

Motley Fool contributor Zach Bristow 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 Ltd. 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.

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The Bubs Australia Ltd (ASX: BUB) share price has risen by around 20% since the company announced that it was working with the United States government to lessen the infant formula crisis in the US.

Bubs is one of the largest infant formula businesses in Australia with a current market capitalisation of $358 million according to the ASX.

It now sells a variety of different products including goat milk infant formula, cow milk infant formula, goat milk products for adults, and organic snacks for toddlers.

US win

For readers who aren’t aware, Bubs Australia has committed to sending at least 1.25 million infant formula tins to the US.

The USA Food and Drug Administration (FDA) said that it would exercise its discretion for the immediate import, sale, and distribution of all six ranges of Bubs infant formula products in the US.

Last week, Bubs announced that it had expanded its US bricks-and-mortar footprint with The Kroger Co and Albertsons companies. This means Bubs infant formula and toddler products will be ranged in more than 4,000 stores across 35 states.

The first shipment of Bubs infant formula under the US infant formula plan has been purchased by Kroger and Co and Albertsons. The products are expected on the shelf starting 20 June 2022.

Bubs said it’s continuing to work with Australian and global distribution partners to ensure reliable supply for all families.

Recently, The Age reported on the positives of the move, as outlined by Wilsons Advisory analyst James Ferrier and Sam Teeger from Citi.

Optimism about the Bubs share price

Talking about the benefits of Bubs’ presence in the US market, Ferrier said that this could accelerate Bubs’ brand awareness in the US. The company was already looking to expand in the US before this initiative.

The deal would add $20 million in sales, though noted that this transaction was technically a one-off. However, the potential brand awareness boost could accelerate the trajectory of sales in the US for Bubs.

Citi rates the Bubs share price as a buy and thinks that the US is a “promising” market for the ASX share. The US government’s assistance could be “helpful for the company’s marketing efforts” and the broker believes it helps position the brand as a safe and reliable manufacturer.

Negatives to be aware of

The Age also referenced some thoughts about Bubs that could be a downside.

Jonathan Snape from Bell Potter thinks that while the US initiative is a benefit that could lead to $30 million of sales, it’s only a one-off. Indeed, the FDA’s fast-tracking process ends in November 2022. That’s why Bell Potter thinks the boost is largely temporary.

Some other potential negatives include general share market volatility and the need for capital to deliver on its strategy and growth. Snape also raised possible supply chain impacts, regulation and licence requirements, key management position risk, and competition.

After the jump in the Bubs share price, Snape downgraded Bubs to a “hold, speculative risk”.

The post Is there still money to be made from Bubs shares? appeared first on The Motley Fool Australia.

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More reading

• Why Breville, Bubs, Terracom, and Xero shares are pushing higher today
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Citigroup is an advertising partner of The Ascent, a Motley Fool company. 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 no position in any of the stocks mentioned. The Motley Fool Australia has recommended BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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As the world frets over oversized interest rate hikes, one high-profile fund manager thinks such a move would be good for share markets.

The comment from Pershing Square founder Bill Ackman stands at odds with investor sentiment. The fear is that large rate hikes will tip the US economy into a recession, which will drag on ASX shares.

But Ackman is calling on the US Federal Reserve to lift rates by 100 basis points (bps) “tomorrow, in July and thereafter”, as reported by Bloomberg.

Are bigger rate hikes better?

The call is larger than the 50bps to 75bps increase that most economists are expecting as the Fed struggles to get on top of runaway inflation.

But, in Ackman’s opinion, the 100-point spike to the Fed Funds Rate will help restore market confidence. He said the central bank had allowed inflation “to get out of control” and called for “aggressive action” that would help restore market confidence.

The hope is that the ongoing hike risk that’s rocking share markets, including the ASX, can be more quickly passed through the system. It’s akin to ripping off the Band-Aid as quickly as possible to get the pain over with.

A crisis in confidence

Certainly, confidence is a commodity in short supply at the moment. Several market experts have voiced similar concerns to Ackman that the Fed has lost credibility given its inflation forecasts have been consistently wrong.

The thinking is only aggressive hikes will help the Fed get on top of inflation and show the market it’s serious about controlling the risk.

But as interest rates are an imprecise mechanism to control inflation, there is likely to be collateral damage to the wider economy.

Recession red flags on aggressive rate hikes

As it stands, Wall Street’s favourite recession indicator is flashing red. The bond yield curve has inverted where the short-term US government bond yield is higher than its longer-term counterparts.

Why investors are spooked is because such inversions have preceded every US recession in the past 60 years.

RBA tainted by the same brush

But it isn’t only the US Fed being criticised for being behind the eight ball when it comes to rate hikes. Several experts in Australia have levelled similar accusations at the Reserve Bank of Australia (RBA).

This could put additional pressure on the RBA to adopt an even tougher interest rate stance as some experts accuse it of being too slow to respond to surging inflation.

The new federal Labor government has promised to undertake a review of the RBA. Several prominent economists are urging it to appoint independent overseas experts for the task.

Given how rare such reviews are for the venerable institution, this is a space ASX investors should be paying close attention to.

The post Why this iconic investor believes bigger rate hikes could ‘restore’ the market, not ruin it appeared first on The Motley Fool Australia.

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• Worried about interest rates and your ASX shares? Here’s the latest from the RBA
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• These 2 ASX 200 shares go ex-dividend next week. Here’s what you need to know

Motley Fool contributor Brendon Lau 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.

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