The ASX200 slipped 20-points lower on Wednesday primarily because the index is more heavily weighted towards the value, as opposed to growth stocks i.e. banks and resources. Fortunately a strong performance from the Healthcare & IT stocks stemmed the losses as the market continued to embrace Tuesday’s dovish comments from the RBA. To put things into perspective the Healthcare & IT stocks make up by less than 16% of the ASX200 compared to 41% for the US S&P500 i.e. the growth names exert far less influence on the Australian index.
- Dovish – today we have a central bank which is promoting policies to expand economic growth and job creation i.e. cutting / maintaining low interest rates.
- Hawkish – this is the opposite scenario when a central banks main focus is controlling inflation i.e. raising interest rates – tightening their policy settings.
On Tuesday we heard the RBA were still committed to holding the cash rate at 0.1% until 2024, around 2-years later than financial markets had been pricing in rate hikes. We believe this has been the catalyst for outperformance by the more interest rate sensitive growth names but our view at MM remains this is a move to fade in the weeks / months ahead however we should remain conscious that established trends usually take some convincing that it’s time to throw in the towel.
I heard a fascinating story yesterday which illustrates perfectly how commodity prices are creating a tailwind for the Resources Sector. A building firm in Brisbane is offering $5k cash to any buyers who break their fixed price contract because the hike in materials cost means the building company is either working for nothing at best, or guaranteed to lose money – ouch!
Overnight US stocks rallied the most in recent weeks as investors focused on the bigger picture ex-COVID, the sentiment switch led to gains by both bond yields and crude oil. The Energy Sector was the best on ground gaining almost 4% but a solid session by tech stocks helped the broad market rally 0.85%, the SPI Futures are calling the ASX to more than wipe out yesterday’s losses and open up close to 0.5%.
MM remains bullish the ASX and keen buyers of pullbacks
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