Tuesday saw the ASX200 get savaged following a poor night on Wall Street and nerves ahead of the Feds pending interest rate decision, not to mention the market being closed for Australia Day creating the perfect storm for traders to have zero risk appetite. Its old news as we brace for this morning’s trade but less than 5% of the market managed to advance in the last session as we witnessed unrelenting broad-based selling wash through stocks, firstly lets quickly just evaluate what happened:
- Financial markets have suddenly become almost obsessed with bond yields & inflation yet interest rates have been flagged to increase for months, the only question was when.
- Growth stocks and particularly Tech were hammered as investors unceremoniously dumped almost all high valuation names.
- New to the mix has been the potential invasion by Russia of the Ukraine – markets hate uncertainty.
The psychology of the market can be a strange and fickle beast at times, markets were pricing in 3 rate hikes by the Fed this year but I question if the migration towards the expectation of 4 hikes was enough to justify the drop over recent weeks. Obviously the Russia / Ukraine tensions are a definite market unfriendly scenario as is common with uncertainty but we believe the markets number one problem was complacency and often leveraged longs, we saw it in Bitcoin first and now stocks have experienced the problem when everyone’s backing the same horse, we’re sticking with one of our core views for 2022:
This year will deliver elevated volatility as equities lose their low interest rate & QE tailwind but when quality companies correct too far, caught up in bearish market sentiment, bargains will present themselves i.e. this is a year to hold quality businesses.
Overnight US stocks experienced a roller-coaster session after the Fed refrained from hiking rates but it did state it would be soon, the S&P500 finally closed down 0.3% after being up strongly with a few hours remaining – the markets still very nervous. The SPI futures are calling the ASX200 to open up 20-points this morning relative to Tuesdays close but it was nearer 100-points before the last US dip.
MM remains bullish the ASX in early 2022 targeting fresh highs
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