Share market investors also have to keep a close eye on Reserve Bank announcements. Any rate change by the Reserve will flow through to the money markets immediately via a move in the cash rate but stocks will also rise or fall as strategists assess whether shares are more attractive investments than cash and bonds. Analysts will feed rate changes into their modeling to work how out companies will be affected by borrowing costs as well as the impact of changed consumer behaviour and discretionary spending and this can quickly flow through to share prices.
Anyone investing over a five-to-seven year period will see major changes in interest rates and investors need to know where we are in the interest rate cycle for an indication of where the stock market is headed. Investors should be reading the Reserve’s statements and announcements for pointers to its thinking on the economy and what action it might take on rates.