Markets are up this month, have we hit the bottom?

The recent market rallies can be attributed to higher-than-expected earnings calls as a result of inflation putting upwards pressure on inelastic goods. Although it can be argued that raw inputs have also increased in price, companies have responded by increasing their profit margins. This naturally leads to inflated revenues and earnings.


With the ASX200 up 3% and S&P 500 up 3.88% in the past fortnight, the question must be asked:


Have we hit the bottom?

Financial analysts certainly don't think so. From a fundamental perspective, inflation is high, whilst interest rates are rising, with the RBA expected to hike interest rates by 75 basis points next month. Additionally, China is still in lockdown, meaning that Chinese manufacturers will halt production for the next few months. Companies that have outsourced production and manufacturing to China will have fewer global deliveries for the next few months, causing balance sheets to look weak. Finally, COVID-19 persists and continues to evolve, forcing both global and local restrictions to become a part of our daily lives.


China COVID
Source: Qilai Shen/Bloomberg

It will be interesting to watch how large investment houses respond to these factors. Have they accounted for the fundamentals and global influences at play?


 

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