S&P/ASX 200 Fundamental Analysis – August 31, 2016 – Forecast

The S&P/ASX 200 closed higher on Tuesday after the previous day’s sharp break. While Monday’s weakness was fueled by a reaction to external factors such as the hawkish comments from Fed officials last Friday, today, the index was supported by higher traditional, domestic sectors such as Gold, Metal & Mining and Healthcare.

Strong gains by Austral Ltd (AX: ASB), Ramsay Health Care Ltd (AX: RHC) and Select Harvests Ltd (AX: SHV) helped underpin the S&P/ASX 200. At the close, it was up 0.31%.

Helping to put a lid on the rally were Gateway Lifestyle Group (AX: GTY), Estia Health Ltd (AX: EHE) and Mesoblast Ltd (AX: MSB).

According to Sydney Stock Exchange Data, advancing stocks outnumbered falling ones by 592 to 470. 330 stocks ended up unchanged.

There wasn’t much movement in the U.S. equity indices on Tuesday with the major players on the sidelines ahead of Friday’s U.S. Non-Farm Payrolls report and Monday’s U.S. Labor Day holiday. Some traders feel there won’t be any reaction to the U.S. jobs report until next week when investors return from the long holiday week-end.

Even before the U.S. jobs report, S&P/ASX 200 traders will get the opportunity to react to the latest manufacturing PMI data from China, early Thursday. At nearly the same time, Australia will release its latest retail sales report.

The direction of the S&P/ASX 200 on Wednesday will likely be determined by how investors feel about the chances for a Fed rate hike. Prices could continue to drift higher if they feel the Fed will leave rates unchanged in September, but they could be capped if the odds of a December rate hike remain steady or increase.

The most volatile stocks over the near-term are likely to be bank and mining related. Banks and mining stocks could benefit if Friday’s jobs report comes out weaker-than-expected and the Fed keeps rates unchanged. Those stocks should weaken if the odds of a Fed rate hike increase as well as the U.S. Dollar.