2 clear observations from July
It was all about the resource stocks today with Iron Ore limit up in Asian trade (+7.95%) which put a rocket under the Iron Ore coys in particular, Fortescue the standout adding +5.9% to close on its highs at $5.74, while both BHP and RIO chimed in for some solid gains – BHP adding +2.05% flirting with $26 while RIO added +2.41% to close just shy of $66. To reiterate, our target for BHP sits at $28 while we’re targeting $70 for RIO, which seemed a far flung expectation a few weeks ago.
BHP Daily Chart
Obviously the Material sector led the charge adding +1.52% and interestingly, the 3 stocks mentioned above accounted for ~11 index points or +64% of today’s gains, while most pain was felt amongst the Real Estate names followed closely by Healthcare and the Telcos – all sectors Market Matters are giving a wide berth at the moment. Overall we had a range of +/- 44 points, a high of 5745, a low of 5701 and a close of 5720, up +17pts or +0.31%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
Looking at the monthly performance for the index, and the sectors within it, a couple of things stand out.
1. The typical July Strength did not play out with the index down -0.02%, versus an average post GFC gain (not including 2017) of +4.04%. The weak performance we saw this July brings down the monthly average (now +3.59%) however clearly, it’s still a bullish month for equities. We were calling for a July mkt rally which didn’t play out for the mkt generally, however some sectors did particularly well. Our stance now is more cautionary across the board given weaker seasonals in August/Sep
2. Secondly, the reflation trade did best and this is an area we are exposed to. Our biggest bullish bets are in Resources and Financials for the MM Growth portfolio while we have a skew towards the beaten down Consumer Discretionary stocks in the MM Income Portfolio. In a weak, choppy market, the worst performers were the typically safe, defensive areas – Healthcare for instance was clobbered -7.47% followed by the interest rate sensitive Utilities sector. Clearly, being exposed to the right sector in the first instance, or at least avoiding the areas that have major headwinds, and then drilling down into specific stocks to buy / or avoid is getting more crucial as this mature bull market works towards completion, and central banks globally turn the dial on current policies.
Source; Bloomberg
As it stands, we’re holding high cash levels (23.5%) looking for opportunities if they present themselves in the right sectors. For now, 5500 on the ASX 200 looks to be good risk/reward buying.
Have a great night
The Market Matters Team
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