I believe trying to time the absolute bottom for ASX share prices is a mug's game.
And though we're proud to be Fools (with a capital 'F'), we'll leave attempting to pick the precise highs and lows of share markets to another category of fools.
Though futures markets may have given some indication, at this time yesterday we would not have been able to tell you with any certainty that the S&P/ASX 200 Index (ASX: XJO) would be down 1.3% in early afternoon trading.
Nor can we tell you now if the ASX will gain tomorrow only to dip again on Friday. Or if share prices will gain both days. Or…
Well, you get the idea.
Rather than encourage a rapid spread of grey hairs, we recommend taking a step back. Have a long-term investment horizon for the quality shares you buy. And when it comes to analysing the market's next moves higher or lower, look at the medium-term trends, not the daily price swings.
With that in mind…
Image source: Getty Images
This is not the end of the rebound for ASX shares
Robert Sluymer is a technical strategist for Fundstrat Global. Using a series of weekly indicators, Sluymer is forecasting markets will bottom out by mid-October.
Sluymer says (as quoted by the Australian Financial Review):
Our technical outlook remains unchanged heading into the fourth quarter viewing the weakness that began for the S&P 500 in September as part of a normal, albeit unpleasant, seasonal correction within the context of a four-year bull cycle…
As more strategists turn cautious, we would highlight that the internal momentum for the market peaked in June and July, and incrementally a growing list of stocks are unwinding the intermediate-term/weekly overbought condition that developed during [and] into the summer. From our perspective, the current pullback is not the end of the rebound but is setting the stage for another advance in the fourth quarter through year-end into the first quarter of 2021.
Show me the money
Whether the ASX rebounds in early October or later in the month, we believe Sluymer is spot on with his call for advancing share prices heading into 2021.
Part of that is based on the share price corrections we've witnessed over the past weeks. Since 3 September, for example, the ASX 200 is down 4%. In US markets the S&P 500 Index (SP: .INX) has fallen harder, down 7% since 2 September.
Even after those retracements, US and Aussie share markets are still well above their mid-March lows. The S&P 500 is up 49% from 23 March and the ASX 200 has gained 30% since then.
That big rebound partly came on the realisation that most shares had been oversold in the initial COVID panic selling. The other major drivers were the waves of record-breaking central bank and government stimulus packages across the developed world.
According to statistics from the Bank of America, the major global central banks slashed interest rates 164 times within 147 days.
Atop the rate cuts, quantitative easing (QE) also kicked back into higher gear. As Bloomberg reports, this resulted in US$8.5 trillion (AU$12 trillion) of monetary support from central banks. Add in the US$11.4 trillion in fiscal stimulus and you arrive at AU$28 trillion in stimulus packages.
The extraordinary moves by the biggest central banks now see them owning assets worth almost 25% of the world's total share market capitalisation.
But they're not done yet. Which is the second reason I expect ASX share prices to see a strong leg up in the coming months.
From Bloomberg:
According to JPMorgan, further asset purchases and credit-easing policies should increase these [central] banks' balance sheets from $21.5 trillion, or 57% of their gross domestic product, to almost $27 trillion, 67% of GDP, by the end of 2021.
Now it's no secret that US share markets greatly influence share price moves on the ASX.
On that front, there are a few glimmers of good news trickling through.
First, the US federal government looks to have averted a costly and embarrassing shutdown on 1 October after the Senate passed a stopgap spending bill yesterday (overnight Aussie time).
Second, and more importantly, House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin are still in discussions for the next big US government stimulus package. It's almost unimaginable that the two sides will put off any further stimulus for much longer.
Whether the Democrats get the US$2.1 trillion package they're proposing or it gets whittled down a bit, the final number is sure to be impressive. And it's also sure to have an impact on share prices.
As Brent Schutte, chief investment strategist at Northwestern Mutual Wealth Management says (as quoted by Bloomberg), "A lot of the fiscal stimulus conversation is driving the markets here in the near-term."
Today might not be the absolute bottom before the next ASX rebound. But the signs indicate we should be getting close.
Foolish takeaway
When word that the next US stimulus package has passed hits the headlines (as I expect it will), many shares on the ASX should see their share prices rise. All the more so following on from the recent pullback.
Hopefully that includes most, or all, of the shares you already own.
But if you want to gain access to the wider performance of the top 200 ASX companies, there are several exchange-traded funds (ETFs) available on the ASX that are intended to closely track the performance of the top 200 listed companies. You can buy and sell shares in these ETFs just as you would with any of the individual ASX companies.
One you may wish to consider is the Ishares Core S&P/ASX 200 ETF (ASX: IOZ). This ETF works to closely match the performance of the ASX 200 Accumulation Index, meaning companies' share price moves plus any dividends they pay.
Year to date, the ETF's share price is down 12%. Since the 23 March low this ASX share price has gained 29%.
