Stock market surviving September well, but outlook is clouded

Shares have slumped in a traditionally weak month for markets, and analysts say some sectors are poised to profit more.

Investors are more than halfway through one of the scariest months of the year for share market crashes, bruised by a 3.3 per cent fall so far in September, and the outlook for the rest of 2023 remains clouded.

Market analysts have mixed views about what sectors are the best places to invest for the coming few months, and the risk of a 10 per cent-plus correction remains relatively high.

Over the past 30 years September has been the second-worst month for returns on the S&P/ASX 200 index, behind only June and its tax-related selling.

Investors are currently worried about high energy prices kickstarting inflation again and causing interest rate rises, a weak Chinese economy that may or may not be propped up by government stimulus there, and higher-than-usual valuations on global markets that could prompt a retreat.

It’s not yet time to party for ASX-listed stocks. Picture: NCA NewsWire / James Gourley

Capital.com senior financial market analyst Kyle Rodda said September and October were a seasonally weak period for shares.

Investors were seeing a turnaround in energy prices and energy stocks, he said, but added that when oil prices surged “markets have a miniature conniption over the fact inflation may pick up again for a few months”.

Mr Rodda said the mining sector’s outlook appeared uncertain until there were positive signals coming out of China.

“I think healthcare is due for a bit of a reversal,” he said.

Quality healthcare stocks such as CSL, Cochlear and ResMed could benefit from the industry stabilising, Mr Rodda said.

However, Bell Direct market analyst Grady Wulff said there might be further downside in healthcare in the coming months as the outlook among key players was “volatile and uncertain”.

“Healthcare as a sector outperformed every sector on the ASX over the last 10 years, but the valuations have remained very high post-Covid so a natural pull-back as earnings outlooks ease is not unexpected,” she said.

Ms Wulff said mining giants such as BHP and Rio Tinto could benefit from an improving iron ore price, while uranium miners such as Boss Energy and Paladin Energy could see upside following a global report predicting uranium demand could double between 2023 and 2040.

“The price of uranium has soared to $US60 a pound for the first time since 2011,” she said.

Mining stocks should climb if China introduces economic stimulus. Picture: Supplied

Some consumer discretionary stocks were impressing investors after strong results in the recent reporting season, Ms Wulff said.

“There are definitely some key players in this sector including Accent Group and Breville Group, which have proven to remain resilient during the tougher macro conditions,” she said.

“We are still expecting a slight pullback in global markets as valuations remain high and the markets have shown resilience in 2023.

“As with every year we are expecting and hoping for a Santa rally in December.”

Shaw and Partners senior investment adviser Jed Richards said he “wouldn’t be surprised” if the ASX 200 index improved on its current levels near 7100 and ended the year closer to 7500.

Mr Richards said retailer stocks were expected to be slow in the months ahead despite recent sales figures coming in better-than expected.

“Retailers are ordering 10 per cent less for Christmas,” he said.

“Retail numbers were expected to be terrible. They have been bad, but not as terrible as what the market had thought. That’s why Harvey Norman is up over the last six months.”

Mr Richards said the market would be watching “how China plays out in the next few months”.

“If we start doing more trade with China, we may see companies like Treasury Wine Estates doing better,” he said.

Trading platform Moomoo’s market strategist, Jessica Amir, said the ASX 200 was likely to plateau ahead of Christmas.

“The market is toying with higher-for-longer energy prices, and that is putting it in a hard place,” she said.

Moomoo market strategist Jessica Amir has an eye on Inghams. Picture: Jonathan Ng

Earnings were declining and there was not strong stimulus news coming out of China, Ms Amir said, adding that investors seeking growth might have to look outside the ASX200 stocks or focus on food businesses and companies that could benefit from AI.

“The market is telling us that food businesses will likely do well,” she said.

Ms Amir said global wheat prices had fallen heavily and this could help a business such as chicken producer Inghams, which was currently facing industrial action over employee pay claims.

“The wheat price is down 30 per cent, and 70 per cent of the cost of growing a chicken is wheat,” she said.

“Chicken is cheaper than beef, and chicken is cheaper than pork.”

Ms Amir said car-related businesses should do well from increased activity as the electric vehicle sector revved up, as should tech companies linked to the surge in artificial intelligence.

Cloud computing and data centre company Megaport was likely to benefit from AI over the next five years, she said.