What Matters Today in Markets: Listen Here each morning
The ASX200 again opened higher yesterday only to slip lower throughout the day as the impacts of Tuesday’s RBA rate hike and a faltering growth sector sent the local index down toward fresh 10-week lows. Selling was broad-based with 70% of the main board closing lower on the day led by the Real Estate -2.5% and IT Sectors -3.8% both of which are struggling in the face of rising interest rates e.g. Australian 3-year bond yields have moved from 3% to almost 4% in just 5 weeks!
- The market was looking for peak inflation/interest rates in early May but after this week’s hike to 4.1%, investors are now 2nd guessing how many hikes are possible before Christmas – a number of analysts are now calling 4.6% in 2023.
We believe the market has found itself positioned incorrectly and a period of readjustment is on the cards i.e. growth stocks and in particular tech have surged through 2023 but their valuations are looking very stretched if we are going to see the RBA and global central banks continue their aggressive fight on inflation – remember Canada hiked rates to 4.75% yesterday, their highest level in 22-years.
- Growth stocks year-to-date: Xero (XRO) +51%, Wisetech (WTC) +46%, NEXTDC (NXT) +36%, REA Group (REA) +17%, and SEEK (SEK) +4%.
- Growth Stock yesterday: Xero (XRO) -5.3%, Wisetech (WTC) -3.4%, NEXTDC (NXT) -3%, REA Group (REA) -3%, and SEEK (SEK) -4.6%.
We’ve been flagging a reversion to the major outperformance by growth over value stocks that’s been very evident through 2023 and it’s now feeling like the chickens have come home to roost. While yesterday was the first day of standout weakness across the sector the renewed inflation-driven uncertainty combined with the rapid appreciation by most growth stocks in 2023 leave plenty of room for profit-taking over the coming weeks/months. We are feeling more comfortable by the day toward the following view that MM has trotted out a few times recently:
- At this stage of the cycle we believe that a neutral stance is prudent i.e. better risk/reward is likely to present itself in the next 1-2 months/quarters.
This morning the SPI Futures are pointing to another solid open up around +0.4% with a more than 50c advance by BHP in the US likely to lead the early gains. The tech sector quickly returned to the winner’s enclosure with Amazon.com (AMZN US), Netflix (NFLX US) and NVIDIA Corp (NVDA US) all rallying well over 2%, offering hope that the last 48 hours were just a minor wobble on profit taking.
