The ASX200 was clobbered yesterday falling -1.9% plumbing levels not seen since late July as broad-based selling washed through our market, noticeably the “dip” buyers failed to surface as we broke down out of the last few weeks trading range. Only 3% of the main market managed to close up on a day when all pockets of the market suffered, almost 15% of the market retreating by -4%, or more.
Thursdays weakness was unequivocally stock market focused as bond yields and currency markets hardly moved, I cant help but think it was a combination of a weak overnight US futures and investors reminding themselves that historically September is one of the weakest months of the year:
- The average return for the ASX200 through August & September over the last decade is -3.8% i.e. a tough period for local stocks even during this strong post-GFC bull market.
- So far in 2021 we have only dipped -0.3% since the end of July leaving plenty of downside room if the ASX is going to deliver an average performance.
- To add spice to the mix historically US stocks fall ~80% of the time in September plus it’s the month which delivers the worst returns for the year.
Its easy to comprehend why the markets experienced some recent jitters as the Delta Strain continues to hinder the reopening of the UK and US economies plus of course there’s the important question of how will central banks manage the orderly reduction of stimulus with only a patchy track record to compare against. However we still believe equities are cheap compared to other asset classes hence we remain comfortable buyers of weakness, at least this time around.
Trying to pick how far the market will pullback involves a lot of guesswork with so many contributory stocks and sectors within the puzzle e.g. the ASX has dipped less than 4% but Commonwealth Bank (CBA) and BHP Group (BHP) have fallen 9.2% and 25.3% respectively, albeit after paying some healthy dividends. Hence at MM we will be focusing our attention on individual stocks at perceived good risk / reward opportunities as opposed to picking how far the ASX200 can, or will dip – market symmetry would target a pullback of similar magnitude as witnessed in this quarter of last year, which would target the 7200 area but the likes of CBA and BHP might easily bottom out sooner, just like they started to retreat earlier.
For bulls like ourselves some seasonal weakness could be very exciting and todays report is all about 5 stocks that sit front and centre on the MM buy radar as we look to increase exposure to the likes of banks and resources into any meaningful weakness – Wednesdays report covered why we prefer the “Value Sectors” for anyone who missed it but todays is all about specific stocks at specific levels so any alerts don’t come from left-field.
Overnight US stocks fell again with the S&P500 down -0.4% although a positive session by the financials & resources looks set to be enough for the ASX to open higher this morning, the SPI futures are pointing to an open up +0.4% today implying yesterdays selling was overcooked with the fall by US indices not finishing as bad as many clearly feared.
MM remains bullish the ASX and a keen buyer of this pullback
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