The return of inflation has given the sharemarket a lot to worry about this earnings season, but the correction in stocks with excessive valuations is almost completely detached from the upbeat economic reality.
The jobless rate of 4.2 per cent is the equal-fourth lowest on record, a 13-year low, and “there are more people employed today than ever before”, says Tim Carleton, pointing to the participation rate of 66.2 per cent, a fraction off its record high. “And yet, we’ve got 396,000 jobs available.”
The Auscap Asset Management principal adds, “we’ve got a very strong labour market and over time that will result in higher wage growth. Savings have been off the charts”.
Carleton knows of a farmer in western NSW in his 80s who says he has never seen conditions this good in his lifetime. The same could be said for other commodities in the green metals space such as lithium, nickel and copper.
In a higher interest rate environment, it stands to reason that investors will demand a higher return than they can get risk-free, all things being equal, the fund manager says.
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