The ASX200 endured another bad day at the office on Wednesday with the index closing down a further -1.3% after flouting with positive territory at lunchtime. Yesterday’s fall was on a distinct lack of buying as opposed to aggressive selling – investors remaining very nervous, a pretty understandable mindset considering the press, both financial and mainstream e.g. yesterday saw Jarden’s suggest local house prices are set for their worst fall in over 40-years. The prospect of the Fed hiking interest rates by more than expected this morning felt like it was enough to send buyers searching for cover as cash feels the comfortable option for many at the moment, ironically a relatively poor performing asset class through periods of high inflation – Ray Dalio once said: “Cash is Trash”.
Again it was hard to find any pockets of optimism with almost 80% of stocks falling but a few areas of the market did catch our attention for varying reasons:
- The banks tried to rally early in the morning before succumbing to further selling whereas the main insurance stocks all rallied, probably aided by the tailwind of ever-increasing bond yields i.e. fund managers are tweaking some of their financial exposure from banks across to insurance.
- Gold stocks enjoyed a reasonable session considering the precious metals fallen more than $US70/oz since Monday – MM believes the sectors cheap and due a decent bounce, perhaps the time has finally arrived.
- Stocks exposed to discretionary spending remain under pressure even as the minimum wage is set to rise – Australians are battening down the financial hatches in anticipation of tough times ahead.
The ASX200 is now plumbing levels not seen since May 2021, we’re down over -11% for 2022 after testing all-time highs only in mid-April. Our preferred scenario remains the market finds a low in the next few weeks before enjoying some degree of a bounce but we will be looking to move back down the “risk curve” if this unfolds, we should also remain conscious that the current market is delivering swings and stock/sector rotation that usually take years to unfold in just a few weeks.
Overnight US stocks rallied strongly following a 5-day rout which saw the S&P500 tumble by ~10%, the Fed hiked by 0.75% but they steadied the market by clarifying that “outsized rate hikes will be rare as they battle against inflation”.
- Bond yields tumbled taking the $US along for the ride following the commentary shrugging off the largest hike since 1994 in the process.
- Stocks rallied led by the interest rate sensitive names i.e. Tech, Real Estate and Consumer Discretionary Sectors.
- The Fed’s firm but balanced rhetoric managed to regain some degree of confidence in its battle against inflation while trying to avoid a recession.
MM is neutral to the ASX200 around the 6600 area
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