The ASX200 waved goodbye to July in lacklustre fashion on Friday, the first month of FY21/22 only managed to travel a meagre 79-pints / 1.1% to ultimately close down just 2-points, it felt like a quiet choppy almost “nothing like” month and ultimately that’s exactly what it was on the index level although there were a view interestingly developments unfolding beneath the hood:
- The market hardly moved yet we still saw 21 stocks rally by 10%, or more, while 13 stocks fell by the same degree i.e. it’s becoming an increasingly choppy market.
- With 17% of the ASX200 rallying or falling by over 10% the traditional “run your profits and cut your profits” hasn’t necessarily been the way to achieve optimum returns during the last month, or through 2021 for that matter.
- As bond yields continued to plumb multi-month lows through July it was a surprise to see the heavyweight resources provide the backbone for the ASX e.g. BHP Group (BHP) +10.9%.
Unfortunately the deteriorating domestic and global COVID picture is threatening to destabilise the bull market which has been evolving from the panic lows of March of 2020, the increasing cases are worrying from both a humanitarian and economic perspective:
- Sydney is in a lockdown which few people believe can end this month and statistically it still feels like the nadir lies way ahead.
- QLD entered a 3-day lockdown on Saturday with the latest number of cases on Sunday already suggesting this may be extended.
- Most countries have been caught out by how virulent the Delta Strain has proved to be with the UK still registering over 25,000 new cases daily while the US is now posting over 75,000 leading to President Biden hinting that new restrictions are likely.
MM is bullish equities but we have to remain mindful that stocks, unlike bonds, appear to be looking at the current economic impact from COVID through rose coloured glasses, especially with most indices trading around all-time highs. It’s not since this time last year that we’ve seen the ASX200 pullback 6-8% and considering the uncertainties unfolding today a similar retracement feels a strong possibility. The SPI Futures are pointing to a strong opening this morning with the ASX200 likely to start the week well above 7400, for MM it’s all a bit 50-50 to us short-term.
MM remains a buyer of weakness across most stock market sectors
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