It was pleasing to see the 30th anniversary of the 1987 share market collapse pass uneventfully last week. On average October is the worst month of the year in the market. The 1929 crash began in October, as did the 1987 event, and the 2008-09 slump almost did, starting on November 2, 2007.
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However this year the market seems far from nervous. Quite the opposite, confidence seems to be building. The All Ordinaries went nowhere from May to September, stuck between 5700 and 5800, but this month it has headed up towards 6,000 points.
The next few months is usually one of the stronger periods in the market, including a Christmas-New Year rally. Of course, it could be abnormal, as October has been. However there is a range of economic data that looks quite positive.
The Australian economy grew 0.7 per cent in the June Quarter, and 2.1 per cent in the last year, accelerating during the period. Exports increased by 2.7 per cent in the June Quarter helped by a pick-up in mineral exports, which is continuing.
Australian company profits for the June half-year were a little disappointing but increased about 6 per cent over the year. Our Performance of Manufacturing Index which tracks activity in factories rose to its highest level since 2002.
This was its 11th consecutive monthly increase and longest positive run since 2007, driven by new orders, increased production and new jobs created, despite the high profile closure of car manufacturing.
Business spending on capital items is increasing. Businesses spent 0.8 per cent more on plant, machinery and equipment in the June Quarter than the March Quarter which itself saw a 0.9 per cent rise over the December Quarter.
Unemployment fell from 5.7 per cent a year ago to 5.5 per cent now. Consumer confidence rose to a three year high last month suggesting strong retail sales figures ahead.
Australian business confidence was at its highest level since 2008 mid-year. It has slipped back a little since, mainly due to high energy prices but remains strong.
The latest data from China, our largest trading partner, shows its economy is growing more quickly than analysts forecast. Its consumer sector is growing strongly and its manufacturing is showing signs of accelerating again. The outlook for our exports to China is healthy.
This positive economic data should lead to higher company profits and share prices. Low interest rates make borrowing cheap for consumers and businesses considering expansion. With investors holding cash on the sidelines in recent months the share market may perform well in the period ahead.
