Market Update - June 2021

The last quarter has had its fair share of ups and downs. The first stumbling block was the government's decision to restrict the use of AstraZeneca to the over 50s due to the risk of blood clots. This led to criticism of the government’s strategy, simultaneously exposing the limitations of a vaccination program based predominantly around the use of just one drug.

Snap lockdowns took place in Perth and Brisbane, swiftly followed by an outbreak of the highly infectious Delta variant leading to a lockdown across Victoria. More recently, we've seen an outbreak in Sydney that's growing by the day. This has led to further restrictions and the closure of state borders to anyone living in the current hotspots.

Last week's announcement that AstraZeneca will now only be issued to the over 60s hasn't helped a vaccine rollout already moving at a snail's pace. This decision will create further delays to the reopening of the international borders. This means more lockdowns are inevitable, and the economy will continue to suffer in certain sectors.

The government announced that supplies of Pfizer will be arriving next month to help plug the vaccine gap. And we can only hope that once they're received, the Australian public will take up the vaccine sooner rather than later. We need to reach a stage where most people have had both jabs. That way, we can feel a level of protection from the virus and reopen our borders. Until then, the pandemic remains a risk. And any new, highly infectious variants will continue to wreak havoc with the economy.

Despite all this, the economy is currently doing well, despite the further souring of our relationship with China. The main fear that keeps rising to the surface is inflation. And that has undoubtedly impacted the markets over the last quarter. So far, each drop has resulted in a fast rebound because of ongoing monetary policy. However, this can't go on forever, and the time will come when changes must be made.

Fears around changing the policies that have supported global recovery came to a head last week when the US Federal Open Market Committee met to discuss the future. Chairman Powell's statement that inflation has risen "notably" created shockwaves. But he repeated his position that price pressures are transitory.

Nonetheless, fears that there may be two interest rate rises as early as 2023 (previously announced to be delayed until 2024) and the potential of a first increase as early as 2022 rattled the markets. And the problem with price hikes is that once they begin, they tend to quickly gather pace, which would not be good news.

Last week, we saw the market bounce back, but it's clear there's no guarantee that interest rates will remain where they are until 2024.

Moreover, as the economy continues its recovery, some economists anticipate a market correction is on the cards. A market correction is defined as an upwards or downwards movement between 10% and 20%. This is something that does happen from time to time, particularly when the market has reached a peak in a short space of time.

At Clearwater, we're committed to continually re-evaluating what's going on in the markets. So even if a market correction occurs, it doesn't necessarily mean it will affect our mid to long term investments.

Nonetheless, with so much uncertainty in the air, we will continue to take expert guidance from our managers - and rest assured, we're always ready to change course if the market demands it.