With only one Reserve Bank of Australia (RBA) rate decision left in 2024, a rate cut before summer’s end seems possible but unlikely in December. Despite inflation falling to 2.8%, within the RBA’s target, the central bank is cautious about temporary cost-of-living relief affecting inflation data. Most major banks, including Commonwealth Bank and Westpac, expect rate cuts to start as early as February 2025. However, homeowners might see savings sooner by refinancing, as lenders have already begun lowering variable rates due to anticipated cuts. Refinancing could offer immediate budget relief ahead of Christmas, despite the wait for official cuts.
Recently, both Australian banking stocks and the "Magnificent 7" tech giants have attracted significant attention due to their soaring valuations. Investors often use various methods to assess a company's worth, with Price Earnings (P/E) Ratios and Earnings Multipliers being among the most common. These metrics offer different insights into a company’s potential for growth and profitability. While high valuations can indicate investor optimism, they also raise concerns about sustainability and the possibility of market corrections. This article explores the valuation trends in both sectors and examines whether these elevated prices are justified or poised for adjustment.
The RBA kept Australia’s cash rate steady at 4.35%, pointing to inflation declines due to cheaper fuel and electricity but maintaining restrictive policy to reach the 2.5% target. Rising employment makes rate cuts less likely in the near term. On the ASX, tech, consumer discretionary, and financial stocks saw strong gains, while energy and materials lagged due to weaker Chinese demand for iron ore and lower oil prices. In the US, markets rallied following Trump’s re-election but dipped when the Fed cut rates by 0.25% and indicated a cautious stance on further cuts amid a strong economic outlook.
Australians moving abroad must understand specific tax obligations to remain compliant. The first step is determining tax residency status, which influences how income is taxed. Australian-source income is taxable in Australia for both residents and non-residents, while residents must also declare worldwide income, with potential foreign tax offsets to avoid double taxation. Capital Gains Tax (CGT) applies differently based on residency, and superannuation rules vary accordingly. Australians abroad may still need to file annual returns, declare study loan repayment obligations, and possibly report foreign income. Seeking professional advice is recommended to handle complex tax rules and avoid penalties.
The ASX has dipped 1.49% recently, influenced by delayed interest rate cuts and a selloff as investors realised gains. The real estate sector suffered the most, with a 5% decline due to prolonged high interest rates, while consumer staples, particularly Woolworths, faced significant losses. Internationally, U.S. mega-cap tech companies are expected to report an average growth of 18.1% this quarter, with large-cap stocks outperforming small-caps. Gold prices have surged over 31% amid geopolitical uncertainties and concerns about U.S. debt, adding to market volatility ahead of upcoming elections.
Negative gearing allows Australian property investors to claim a tax deduction when the costs of owning an investment property exceed its rental income. This strategy reduces taxable income, making it popular among investors looking to offset other income, such as wages. For example, if a property generates a $10,000 annual loss, an investor can claim that loss to lower their taxable income, saving thousands in tax. Negative gearing has been a point of political debate, with recent discussions about its impact on housing supply. While popular, it’s not for everyone, so consulting a tax professional is advised.