If a week is a long time in politics, three months is a long time in the sharemarket.
The financial airwaves were all doom and gloom in mid-August as stocks went into free fall over worries about trade wars and recession.
Now things are very different with the All Ordinaries Index – the broadest measure of Australian shares – in record territory, closing up 0.22 per cent to 6965.6 points.
That means since a significant low of 6485 points on August 16, the value of Australian shares has increased by $171 billion.
Telstra, which rose 4 per cent to $3.86, was one of the main movers on Thursday after a troubled few years.
If you think the bad news has been outweighing good on the economy in recent times, you would be right.
As the market hit a record, official figures show that business capital spending has taken a hit and wages and inflation are bouncing along the floor.
This week Reserve Bank Governor Philip Lowe said a weak economy could lead him to cut the cash rate to 0.25 per cent, virtually zero, from the current low of 0.75.
So what’s going on?
Independent economist Saul Eslake says the sharemarket isn’t measuring the world consumers and workers see.
“The biggest factors holding down the economy are household income and consumer spending,” Mr Eslake said.
“The sharemarket does not measure that economy, it reflects what people expect to see from corporate earnings.
“The profit share is at near-record levels, net income [for business] is all right.”
So the world measured by shares is healthier than the one confronting consumers and share prices reflect that.
David Walker, a market strategist at Clime Asset Management, said the corporate world has been reasonably healthy.
“Earnings have not been terrible and the Reserve Bank has talked about cutting interest rates further, which means we can expect to be in a low interest rate environment for the foreseeable future,” Mr Walker said.
Who would have thought?
That means people are looking for ways to earn a decent yield, and in cash or bonds they might get just over 1 per cent.
So they buy shares that might pay dividends of 3 per cent, but the chase for yield has its weirdness.
“The market is reaching new highs because people are paying more to get less,” said Roger Montgomery, principal of Montgomery Asset Management.
“If you take out the materials and energy sectors, which include stocks like BHP and Origin, earnings per share for companies is declining while PEs [price earnings ratios, the value of companies against their earnings] are rising.”
There is another factor at work.
Because of strength in the US economy and falls in the Australian dollar “companies with US earnings are doing well,” Mr Montgomery said.
“Companies like Amcor, Computershare and CSL, large Australian globals are doing well,” Mr Walker said.
US shares are also in record territory and that encourages Australian investors to chance their arm.
“To a degree the Australian market takes its lead from others and the US has been doing well,” Mr Eslake said.
Will low rates remain?
“There’s a lot of pressure on [Dr] Lowe with inflation low, unemployment at around 5 per cent and wages are likely to be growing by around 2.5 per cent,” independent economist Stephen Koukoulas said.
So with that outlook the low rate environment looks here to stay for a while as the RBA tries to boost the economy.