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Expert Shane Oliver says “shares may have bottomed”

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In his latest economic note, Shane Oliver outlines why he thinks shares may have reached the bottom.

The stock market may have officially bottomed out, as much of the bad news that has plagued shares in 2022 is baked into the share price.

That is the message from AMP's chief economist Dr Shane Oliver.

The expert points to increasing evidence of inflation peaking in the US, central banks slowing their rate rises, China looking to support its economy and a track record of shares rising post US midterms.

"There is a rising chance we have seen the low in shares and we remain optimistic on shares on a 12-month horizon as investors will start to focus on monetary easing from late next year and then economic recovery," Dr Oliver said.

What will that mean for share prices over the next 12 months?

Share prices have had a strong few weeks.

Over the last month Australian shares have been up around 10% from their recent lows.

Meanwhile on Friday our time, US shares had their best day in almost 2 years.

Dr Oliver says these recent rebounds in prices are sustainable.

"Shares may have run a bit ahead of things in the near term as they often do, but the big question is whether the rebound is sustainable," he said.

According to the economist the run could continue as the economic weaknesses subside.

"Longer term inflation expectations remain reasonably "well anchored", suggesting that it should be easier for central banks to get inflation back down than it was in the 1980s when deep recessions were needed to break an entrenched inflation psychology," he pointed out.

Okay great, give me the bear case

While Dr Oliver says the market may have reached the bottom, he does note 4 key risks that could impact the market.

  1. Inflation could surge anew meaning rates will rise.
  2. Recession – While Europe is likely in one, there's a 50:50 the US will enter a recession. Australia appears to have a 40% chance of falling.
  3. Geopolitics could get worse – The European situation could worsen or other tensions could rise.
  4. Republicans could take control of the house leading to brinkmanship in funding the US government and increasing the debt ceiling.

Despite the risks, the economist points to brighter times ahead.

"The ride for shares may still remain choppy and new lows can't be ruled out.

"But the increasing evidence of a peak in US inflation and central banks slowing their rate hikes along with positive seasonals and the track record of US shares rallying after the midterms indicate we may have seen the low and add to our confidence that the next 12 months will be positive for shares," Dr Oliver concludes.

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