The ASX200 continues to rise on a wave of strong corporate earnings, record low interest rates plus of course an almost tsunami of cash looking for some semblance of a decent return in todays challenging world. There are clear signs that investors are migrating up the risk curve looking to add value / alpha but it definitely doesn’t feel like panic buying leading to a classic “blow-off top”. I would describe the markets “look & feel” more that of a simple absence of sellers, which by definition forms a path of least resistance to the upside as stocks search ever higher for a new level of equilibrium. This grind higher is being supported by earnings, with aggregate earnings revisions +1.1% last week and we also saw an equivalent increase in analyst target prices, which makes sense.
The banks have led the index higher over the last month but they’ve been well supported by insurance, healthcare and real estate stocks although outside of gold / iron ore its been a fun time for most of the ASX. We believe the banks are tiring hence our exposure reduction last week but their momentum is still ok and although August & September is historically a relatively tough time for stocks it’s very easy to envisage the ASX200 with an “8 handle” by Christmas, it’s now less than 5% away!
Equities have received some significant bad news of late yet on Friday we again registered a fresh all-time high i.e. a market which can shrug off an aggressive kick up in bond yields in Q1, China increasing its regulatory environment plus of course the Delta Strain creating a major headwind for the global economic recovery, must be acknowledged as strong. Hence sorry to be repetitive but the smart money is staying long and looking for buying opportunities until further notice, it may sound boring but it’s working.
Our “best guess” is the ASX200 will consolidate around the psychological 8,000 area, similar to how it did around both 6000 & 6750 levels before pushing higher into 2022 but the most important consideration is we remain keen buyers on the index level of the next pullback of around 300-points, when it eventually does unfold.
MM remains bullish equities and a buyer of weakness across most stock market sectors
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