1 up, 1 down….
Yesterday’s Trump fuelled the rally seems a distant memory, with the market being clobbered by ~50pts today. This is very typical of a mature bull market which has been running since 2009 – a stat we’ve often quoted and one that continues to guide our investment decisions for the MM portfolio. There is little doubt that the Trump factor is real, fiscal stimulus in the world’s largest economy will improve global growth and that will ultimately lead to higher inflation and higher interest rates.
However, as with anything, getting exposure to a particular theme when it’s a known known has been, and will always be difficult – today is an example of that. If we cast our minds back to the start of February, the optimism around resources was extremely high ahead of a reporting season, that confirmed that resource stocks were printing exceptional numbers. Production was up because they thought prices would be low for an extended period, so they produced more to lower the cost per unit. However as it turns out, prices rallied at a time when production was strong = a huge uplift for earnings, so why in the month of February when all this played out, were resources the worst performing sector on the ASX?
Sectors last month….(February 2017)
Source Bloomberg
The answer is clearly around expectations. They were high, the companies delivered, but the holders of those companies expected it and there was a clear void of new buyers. The resources stocks have now pulled back – we’re short Fortescue (FMG) when the majority love it, but we have remained firm with our views / levels to step up and buy these names. We agree that resources are a big part of the reflationary trade, however with all types of investment, whether it property, shares, exotic fish or anything else that appeals, the total return is dictated by the price you pay. We will buy resources soon, but today is a clear lesson not the follow the crowd. We don’t follow the crowd and hope our subscribers have found us, because they don’t want to do that either.
Fortescue Metals (FMG) Daily Chart
To that end, we bought a Gold stock today after selling one last week, Newcrest Mining (NCM) when it was trading significantly higher. This is not about being traders, it’s about being active in our allocations and adding value. So many managed funds in this day and age more or less track an index. If you want to track an index, MM is not for you. If you want to try to outperform, then stick around, that’s what we’re about.
Stay tuned for the Weekend Report on Sunday – we’ll detail our views on all major markets globally.
On the market today, we had range today of +/- 40 points, a high of 5465, a low of 5712 and a close of 5729, off-47pts or -0.81%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
Have a great night,
The Market Matters Team
Disclosure
Market Matters may hold stocks mentioned in this report. Subscribers can view a full list of holdings on the website by clicking here. Positions are updated each Friday.
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