AMP Ltd (ASX: AMP) has revised its end-of-year forecast for the S&P/ASX 200 Index (ASX: XJO) from 7,900 points to 8,100 points.
The upgrade follows the ASX 200 cracking the 8,000 mark for the first time on Monday.
The market benchmark reset its all-time record high again yesterday when it reached an intraday peak of 8,083.7 points.
On Thursday, the market is down 0.33% to 8,031.7 points at the time of writing.
The market wobbled today on news of a minute rise in the unemployment rate last month, which prompted new speculation about the Reserve Bank's next move on interest rates.
Let's see what AMP chief economist Dr Shane Oliver has to say about the ASX 200's path from here.
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'Roundaphobia' may charge up market exuberance
AMP expects the ASX 200 to rise in value by 6.7% (excluding dividends) in 2024, finishing the year at about 8,100 points.
Its original forecast, published in May, was for the ASX 200 to finish at about 7,900 points.
In a blog, Dr Oliver said the upgrade reflected "prospects for lower interest rates globally and eventually in Australia boosting the growth outlook next year".
He added that the ASX 200 pushing through a big round number was psychologically significant for investors. He said this milestone may inject "roundaphobia" exuberance into the market, with more investors feeling inspired to invest and thereby possibly pushing the benchmark's value higher.
3 factors driving the ASX 200 higher
Dr Oliver explained there were three factors that drove the ASX 200 to its new record high this week.
1. Renewed optimism about interest rate cuts in the United States
Last Friday, we got the news that the US consumer price index (CPI) fell 0.1% between May and June. That put the annual rate at 3%, which was reportedly the lowest figure in more than three years.
Dr Oliver said:
A US rate cut is now fully priced in for September with nearly three cuts priced in by year end. This follows cuts in Switzerland, Sweden, Canada and Europe.
Lower interest rates offer the prospect of better global growth in 2025 and they also help improve share market valuations. This has further boosted global shares, pulling Australian shares up.
2. What happens in the US will eventually happen to the ASX 200
Better prospects of a rate cut in the US have lifted hopes that the Reserve Bank will not raise rates here.
Dr Oliver said:
Consequently, we have seen money market expectations swing from around 70% probability of another hike by year end a few weeks ago to now just 16%.
This has further helped boost interest sensitive Australian shares.
3. Signs of rotation from tech to cyclical shares
Dr Oliver said there were signs of a rotation from tech shares, which typically offer higher long-term growth potential, to value shares and cyclical stocks.
ASX 200 value and cyclical shares are more likely to benefit from rate cuts and any associated economic growth.
Dr Oliver said:
This has been most evident in the US with a resurgence in small caps, with the Russell 2000 small cap index up more than 11% in the last week, but it may also benefit the relatively cyclical Australian share market.
Despite these three positive factors, Dr Oliver warned of a "volatile and more constrained outlook" ahead.
'High risk of correction' in August/September
Dr Oliver said an ASX 200 share correction may occur in August/September, which may present buying opportunities for investors.
Dr Oliver said:
But given risks around valuations, near term growth and geopolitics, we anticipate a volatile and more constrained outlook with a high risk of a correction in the August to September period, particularly if investors factor in the more negative economic implications of a Trump victory.
He clarified that August/September was historically a seasonally weak period for the market.
