Indices: Australian ASX 200
The ASX200 was sold off aggressively last week and we believe there’s a strong possibility that the selling could follow through over the coming weeks – if we look at the move in June 2022 the decline may have only just begun! Just because stocks fell last June is not a reason for MM to adopt a selling approach to stocks but when combined with the weakening economic data that’s surfaced over recent weeks it does combine to make us adopt a cautious short-term approach.
Following last night’s strength across US Tech which saw the NASDAQ advance +1.76% compared to the Dow which gained just +0.56% we’re not surprisingly expecting the buyers to return to the growth stocks today, especially after oil tumbled -3.65% taking the US Energy Sector down -1% – however, we do believe the last few sessions is showing that some realignment in the value and growth sectors is starting.
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.
The S&P500 continues to climb a wall of worry decimating the portfolio performance of the numerous non-believers along the way. While the Tech Sector continues to climb it feels to us like the rest of the market will play some catch-up as opposed to the likes of the Artificial Intelligence (AI) bubble bursting so early after NVIDIA’s (NVDA US) outstanding result.
The markets love to roll out a saying, almost as much as an acronym, with “sell in May & go away” a definite favourite which is actually supported by solid statistics going back decades. However, this year while the press had a field day with stories on banking failures, looming recessions and a US debt crisis the underlying index has been quiet e.g. this month the ASX200 has traded in a noticeably tight 3.2% trading range, one of the smallest post-COVID. In other words, it may not feel like it to many subscribers but the markets are relatively quiet at the moment.
The ASX200 opened strongly as expected on Monday trading up 100 points early in the session before surrendering all of the implied gains courtesy of the US debt deal i.e. The SPI futures closed below where they did on Saturday morning before the positive announcement by Biden & McCarthy. While the +0.9% advance was solid and broad-based with over 70% of the main board closing up on the day the sellers again weren’t shy to take some money off the table intro strength.
The ASX200 fell away in the last full week of May making fresh 8-week lows in the process, the influential banks and resources weighed heavily on the local market. However, the moves & news of the last few days could easily see the market punch to fresh monthly highs this morning as the index rotation in the 7000-7500 area continues.
The ASX200 compounded Monday’s poor afternoon falling another -0.63% yesterday as fears of a US debt default intensified as the standoff between Biden and McCarthy showed no signs of improvement – as we’ve said before let’s hope politicians put egos aside and find some middle ground for the sake of everyday Americans. Over recent weeks, we have been asked questions similar to, “What will happen if the impasse continues with the debt ceiling talks and the US cannot meet its financial obligations?”.
