Yesterday saw stocks rally strongly early in the morning only to steadily decline from their mid-morning high as the value stocks reversed early gains to close down on the day – primarily the banks but the resources did close well below their intra-day highs. The bottom line is equities appear to becoming rattled by the worsening COVID picture both locally and overseas and whatever the path that the delta strain and others take – some important market points should be remembered:
- We believe equities are being priced for a strong local and global economic recovery and history tells us stocks generally don’t like surprises.
- Both the “reflation & recovery” trade has soared in 2021 but when too many investors are pointing in the same direction volatility can spike aggressively e.g. the US VIX kicked up over +20% last night.
- Bond yields are rapidly surrendering their strong early year gains providing a strong outperformance tailwind from growth stocks over value.
Markets are creatures of habit and so far in 2021 we’ve only experienced one week where the ASX200 travelled by over 300-points and that was way back in early February. Again we’re not saying its time to sell stocks and move to cash but a ~5% pullback towards the 7000 area would only represent a test of the lower side of he markets well established uptrend, while a 8% pullback to test the medium-term trend line would be even more appetising – our “Gut feel” is we will get the opportunity to accumulate stocks in at least one of these areas in the coming weeks / months.
Overnight US stocks put in an admirable performance to recover from early sharp losses, the S&P500 ultimately closed down -0.9% but it was far worse with a few hours to go. The SPI futures are calling the ASX200 to gap down over -0.5% to kick off this Friday with the Financials likely to lead the declines.
MM remains a very keen buyer of stocks into a decent pullback
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