ASX Shares Severely Affected by Interest Rates, Experts Predict Possibilities

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The markets are mixed following the recent release of US Federal Reserve (Fed) minutes. Members of the Fed all resolved to fight inflation by continuously increasing interest rates. Moreover, many AU experts predict different possibilities for the Australian market.

Last week, gains in technology shares strongly contributed to the rise in AU shares as many witnessed “investors bet against inflationary pressures and rising interest rates,” according to Reuters journalist Rishav Chatterjee.

ASX Share Australia

Chatterjee added that the technology stocks rose by 2.7 per cent, followed by healthcare and real estate at 1.0 per cent and 2.2 per cent, respectively. Brad Smoling, managing director for Smoling Stockbroking, also predicted that inflation would soon decrease based on the lower oil prices.

However, Damien Klassen, chief investment officer for Nucleus Wealth, stated, “Any investment is an exercise in probabilities. As part of the process, it is prudent to look at the various outcomes and consider the likelihood of different scenarios occurring.”

Klassen presented his predictions on a few potential scenarios. He predicted that if the central banks decide to cut rates rapidly, equity markets will significantly benefit. Growth and cyclical stocks will pace the market, and emerging markets and commodities will soar as the global market rapidly picks up.

Another scenario Klassen predicted is that interest rates could pause in the first half of 2023 and decline in the second half. Should this occur, the officer believes that quality stocks will perform better. He also recommended, “You want stocks that can maintain their margins, as earnings will be under pressure. At the same time, markets will be rewarding earnings growth with multiple expansions.”

The worst scenario would be that interest rates rise in the first half of 2023 and then pause in the second half, according to the expert. Klassen noted that this scenario would be disastrous for stocks as the USD would be strong, and it would cause the emerging and commodities markets to plummet.

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