Indices: Australian ASX 200
The ASX200 rallied over +0.5% on Thursday although again we saw some selling into strength with the market relinquishing ~40% of its early morning gains. Under the hood, we saw over 60% of the market advance with Tech names continuing their march higher, this time helped by the bullish sentiment following a positive earnings report from Xero (XRO) which ultimately closed +8.9% higher, the “tech v Miners” elastic band which MM has been discussing at length recently continues to stretch ever higher.
Following a strong session on Wall Street the SPI Futures are calling the ASX200 to recover all of yesterday’s losses with a +60c advance by BHP in the US set to support the index. The gains in the US we’re fuelled by easing default concerns which enabled the NASDAQ to make fresh highs for 2023 on increasing risk appetite but overall gains were broad-based suggesting we should see the same this morning on the ASX.
Recession fears continue to exert a huge influence over markets with bond yields targeting central bank pivots in the near future, year to date we’ve witnessed stocks that like a strong economy and higher rates struggle from a relative perspective e.g. Westpac (WBC) –9.7%, Woodside (WDS) -5% and BHP Group (BHP) -4.7% compared to Wisetech (WTC) +39.8%, Xero (XRO) +33.5%, and REA Group (REA) +25.5% i.e. 2023 has been dominated by growth stocks after the first 4 ½ months.
The ASX200 finished fairly flat yesterday as a stronger banking sector and some M&A offset weakness amongst the resources, although the Lithium stocks bucked the trend as the highly acquisitive Allkem (AKE) joined forces with US listed Lithium producer, Livent (LTMN US) in an all share merger – more on this below.
6 months ago, analysts were forecasting earnings growth in the sector of around 13.5% for FY23, today that number sits above 16.5% although it did peak at 17% around a month ago. This means there has been no material downgrades to this year’s earnings, however, we are seeing downgrades to expectations for next year (FY24) where analysts now expect earnings to decline by an average of 6%, top and tailed by CBA where consensus is pricing in a 4.7% reduction versus NAB which is being forecast to see earnings fall by 8.5%.
The ASX200 started the week on the front foot with 70% of the main board making gains. All sectors aside from the defensive Consumer Staples contributed to the advance with the most strength seen amongst the ESG names as influential broker Morgan Stanley called the bottom in Lithium prices after a sustained period of weakness, softness in Electric Vehicle (EV) sales particularly from China the main reason – more on this theme later.
US stocks rallied strongly on Friday night as regional banks finally managed to bounce after falling a painful -20% into Thursday, this combined with Apple Inc (AAPL US) +4.7% helping the NASDAQ to its best close since August 2022 resulted in strong gains across the major US indices e.g. S&P500 +1.85%. With US earnings coming in ok and central bank meetings now in the rear-view mirror we wouldn’t be surprised if the worst of May is already behind us.
The ASX200 was hit hard yesterday morning following a disappointing earnings result from National Australia Bank (NAB) which sent the stock down -6.4% dragging both the sector and index along for the ride – remember one of MM’s favourite old sayings is the market (ASX) can’t go up without the banks. However, it wasn’t all bad news on Thursday as the broad market recovered strongly from the weak opening to erase over 90% of the early losses led by gains in the Resources, Tech and Real Estate Sectors i.e. investors switched as opposed to outright selling stocks.
The ASX200 has felt tired over recent weeks, as we’ve been highlighting, but that’s translated to outright vulnerability following a couple of weak sessions on Wall Street and the surprise rate hike by the RBA on Tuesday – recession fears are clearly gathering momentum. At MM we had adopted a more defensive stance into May but after seeing the local index fall over 100 points at one stage yesterday it poses the question of whether we should migrate even further down the risk curve.
The ASX200 fell another -1% yesterday taking its drop over the last 2 sessions to -1.9% illustrating perfectly how the market wasn’t vaguely expecting the RBA to hike rates on Tuesday – enough said on that already! The selling was broad-based with over 70% of the main board ending the session lower with the Energy and Financial Sectors leading the decline in a similar fashion to the US on Tuesday night.
