The milestone comes just over a year after the index broke through 8,000 (15 July 2024), marking one of the strongest runs in recent years.
Speaking to InvestorDaily, AMP chief economist Shane Oliver said the rally has been supported by a more positive global backdrop.
“Worst-case scenarios for the tariffs seem less likely … Global economic data remains mostly OK and profits are coming in stronger than expected globally and will likely pick up in Australia,” he said.
Even so, Oliver warned that the rally may have run ahead of fundamentals as the ASX 200 is trading at around 21 to 22 times trailing earnings and 21 times forward earnings, compared to a long-term average of 15.
“Valuations are stretched, shares are technically overbought and we could still easily go through a correction,” he said.
However, Oliver pointed towards seasonal weaknesses presenting a risk as “August and September are rough months globally, and in Australia, September and October have tended to be rougher”.
He further noted that tariff pressures could still re-emerge in the months ahead, which could potentially lead to slowing growth and additional inflationary risks.
Despite these concerns, Oliver struck an optimistic note about the year ahead: “On a six to 12-month view, I am still reasonably optimistic … Central banks, including the RBA and the US Federal Reserve, are likely to cut rates further.”
He added that while the market remains vulnerable to short-term pullback, the longer-term picture looks more positive.
“I can understand why it [the ASX 200] has gone up, but there is a vulnerability to a correction in the near term,” he said. “On a six to 12-month view, I expect to see further gains, although they may come after a pullback.”
Fed minutes signal incoming headwinds
Meanwhile, the minutes of the US Federal Reserve’s July meeting flagged economic headwinds, despite US equities trading at all-time highs, reinforced by the “highest percentage of beats in the recent 2Q earnings seasons since 2021,” according to VanEck senior portfolio manager, Cameron McCormack.
“...signals coming from the Fed, as well as other economic indicators, suggest we might be right back where we started at the beginning of the year when markets were 'priced to perfection',” McCormack said. “This is evident with US credit spreads at pre-GFC levels and market volatility (VIX) at the historical lower bound.”
McCormack further noted the latest FOMC minutes backed concerns within the committee about the inflationary effects of tariffs and signs of weakness in the labour market.
“In our view, these risks are yet to be fully priced in by markets,” he said. “The biggest potential threat being overlooked, we think, is the risk of stagflation (higher inflation and low economic growth) as a flow on effect from US tariffs.
He pointed to rising core inflation, slowing employment gains, higher prices in the ISM services survey and softer activity readings as early signs this could emerge.
Moreover, McCormack drew comparisons with past episodes of market excess, such as the dot-com boom and the post-COVID re-opening trade in 2021, arguing that valuations are again near cyclical peaks and that weaker, unprofitable companies are the most at risk.
“We think investors should consider preparing for heightened market volatility by investing in quality companies.”
“Within these kinds of low economic growth environments, quality companies tend to outperform due to their defensive characteristics. These are companies with a high return on equity, stable earnings, and low financial leverage," McCormack stated.
