For this month, we have focused our Insights on the SME Business sector, with commentary on recent General Interest Charge updates and TPAR Reporting.
Another event that occurred during this time was the return of Chris Lewis to the AGR team. Chris has been busily reconnecting with everyone and putting together an awesome line up of topics and events. The podcast series is coming back so keep a look out for its monthly release. If you have any specific topic you wish to hear about let us know. If you wish to be a guest on the podcast series, please reach out.
For August, we have all been captivated by the Canberra Roundtable. I missed out on an invitation.
Productivity was supposed to be the main discussion point and it ended up being about increasing taxes. Not sure how this makes Australia a more desirable business location to invest or how housing will become suddenly so much cheaper. Hopefully some good news will come out over the next few weeks that will boost morale and allow the government to decrease its spending on programs that add no value.
Australia received an interest rate cut from the RBA on the first Tuesday in August – a 25bps cut – but nevertheless it was welcomed by many in the country. Some commentors are looking at the next rate cut being November and then another rate cut in February 2026. This would take the official RBA interest rate down to 3.1%. A neutral interest rate setting for many commentors.
The Federal Reserve held their August meeting in Jackson Hole as is the norm for this annual event. Chairman Powell did not cut interest rates at this meeting (the next scheduled meeting for discussing an interest rate cut is September), although his remarks at the conclusion of the talkfest was more conducive to cutting interest rates rather than increasing interest rates.
The Trump tariffs are still a big unknown as an impact upon the economy and inflation. The last couple of monthly job reports had the economy slowing from a hiring perspective. Suppliers and companies have not passed on the tariffs yet. Some companies are now starting to pass on some of the tariffs. The next couple of months will be interesting.
There is a good chance that the Fed will cut at the next meeting. How this is interpreted by the markets will determine the trend for the remainder of the year.
While wage growth in Australia was a touch stronger than the RBA had expected, many believe that wage growth will moderate to around 3%. Wages growth does come into the RBA’s thinking around interest rate movements and the impact on inflation. The strength in the wages growth number mainly came from the public sector, the private sector is at RBA forecast levels. This tells me that parts of the economy are really hurting whilst more non-productive sectors that are using a government funding business model are doing better.
The unemployment rate in July fell to 4.2%. There was a strong rise in employment of 24,500, it was the participation rate that kept the statistics in line with forecasts.
My metric – the underemployment rate fell to 5.9%, with the underutilisation rate still hovering above 10%. The RBA believes that annual employment growth will about 1.8% – which means that the public sector will be doing the heavy lifting to maintain a low unemployment number.
If wages growth moderates somewhat then the RBA may be more inclined to do another interest rate cut or two. Inflation and Trump tariffs will be the key metrics to follow.
The Trump tariffs certainly have not yet impacted the markets with profit downgrades and margin contraction. Largely unseen in the US current reporting season to date. The market this week awaits the Nvidia result for the quarter – that is right – for a quarter! With Nvidia making up 7.5% weighting in the S&P500 even the passive ETFs will review the results and associated conference call.
On the topic of concentration in an index – the Magnificent 7, Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla – make up about 33% of the S&P 500 index and a higher amount of the Nasdaq index. Retail investors are loving the ride – not only buying the index (for diversification) but also then doubling down and buying the individual stocks. It has been certainly a profitable trade for a few years now. Is it too late to buy the Magnificent 7? Some commentors believe not. All the companies are performing (Tesla might be arguable dragging its feet) and Big Tech is achieving great revenue growth rates and the nervousness around AI investment amounts seem to be receding.
Don’t get me wrong, valuations for the Magnificent 7 are high and priced for perfection. But the stock-market is forward looking, so based on 3-year future profits, some of the Magnificent 7 look reasonable priced. Certainly, the companies are priced higher than the S&P 500 index – but some of the companies in the index are not performing strongly.
It will be interesting to see what is the trigger that starts the rotation away from Big Tech back to the general Main Street companies. Once the rotation starts, then both active positions and passive positions will be affected. Prudent rebalancing of portfolios is always advisable.
In our March 2025 newsletter, I mentioned the Bendal’s case which was around the tax topics of Div7A and UPEs between Trusts and Corporate beneficiaries. To date the High Court has not announced whether it will hear the appeal, and the ATO has not updated any rulings or legislation around the topics. So, we sit and wait for clarity.
Football finals are not that far away – September and Spring – a welcome change from winter weather.
The beloved Richmond Tigers were a few games short of making the finals this year, so I can watch without stress the eight teams that did make the finals series. The Brisbane Loins are a good chance of going back-to-back, but as always Geelong is there with a chance. Good luck to all teams.
The NRL will start their finals campaign shortly, with the Broncos flying the Queensland flag. Perhaps the Dolphins can sneak in the eight as well. Penrith will have to come from along back to claim the flag this year. Good entertainment and discussion for the water coolers (for those in the office) and on Teams (for those that are not).
Next month’s newsletter will discuss some strategies and new developments in the Property industry.
For any further information on what’s discussed throughout our Newsletter for this month, please feel free to contact the Adviser team – who would be happy to assist where possible.
Ian Walker
Executive Chairman
Archer Gowland Redshaw