A new financial year is upon us and if its only half as good as FY20/21’s it will still be well above the average performance of recent decades but with the tailwind of huge fiscal and monetary stimulus diminishing fast MM believes the next year is likely to be very different to the last one. Already in 2021 we’ve seen a noticeable migration back towards the value sector and in particular the banks which has helped the ASX200 rally +11% since January 1st i.e. the average gain of the “Big Four” banks has been +23.7% as they’ve embraced the prospect of higher bond yields.
MM believes the market remains largely in the hands of both central banks and politicians which on the face of things is a scary prospect but we cannot argue with numbers post both the GFC and COVID as risk assets have enjoyed some of their best gains in history :
- Central Banks are juggling the economic recovery against that stock market killer inflation, so far the “don’t fight the Fed” believers are winning hands down but the games getting tougher by the month for Jerome Powell, Philip Lowe et al.
- Governments are balancing lockdowns and vaccine rollouts, the UK is re-opening in earnest even as they register ~20,000 cases per day whereas Australia’s 50% locked back down with just ~320 active cases BUT the UK is 8 times more vaccinated than we are.
At MM we believe too much time and effort is often wasted trying to second guess policy decisions plus of course their subsequent impact on equities. We believe its far easier to run core stock, sector and market views which are founded on straightforward fundamentals and supported by technical risk / reward profiles. Then as things evolve we can apply simple check and balances to quantify how we invest around our opinions while remembering to “not fight the tape” – except occasionally with clear stops! Probably the main thematic that MM has adopted through 2021 that’s been off-the-mark so far has been our anticipation that volatility would remain high, this view has now been tweaked in line with the last 6-monthss trend :
- There has been some major volatility on the stock and sector level but not on the index front as we’ve advanced steadily, we see no reason to fight this at present.
- At MM we simply remain happy buyers of pullbacks and will let the $US and bond yields help us identify the sectors to deliver optimum performance but we still think another 5-10% correction is highly likely at some point in 2021.
Overnight US stocks were mixed with the Energy & Financial Sectors catching a bid while the tech stocks closed marginally lower, the SPI Futures are calling the ASX to open unchanged this morning as we recalibrate after the FY 21/22.
MM remains a very keen buyer of stocks into pullbacks
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