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On Monday night the major US indices slipped lower, with the S&P500 ending the quiet session down -0.38%, but the underperforming market segment of the last two years, the small caps, managed to advance +0.6%. This trend extended overnight, with the S&P500 edging up +0.1% while the Russell 2000 (small cap) Index rallied +1.4%. It may surprise many subscribers to know that the unheralded US small caps have advanced +25% from their October low, slightly more than the S&P500 without any of the benefits of the “Magnificent Seven”. We see no reason to fight this new area of outperformance, albeit minor, through 2024.
- We believe the Russell 2000 will continue to outperform the S&P500 through 2024 – a very different tale to 2022 and 2023.
- Similarly, we are looking for the ASX to outperform the S&P500, which suggests strength will finally raise its head in the influential miners.
We’ve been looking for further reversion on the stock and sector level driven by liquidity, i.e. investors searching for “relatively cheap” opportunities. However, although there have been pockets of catch-up on the ASX, it has largely remained a case of the “strong getting stronger”. Our forays into contrarian value picking in 2023 largely disappointed, with average results from Magellan (MFG) and Elders (ELD), while our positions in Lendlease (LLC) and Iluka (ILU) are struggling in a firm market. However, the lithium space is starting to recover as volatility increases in the Resources Sector; we firmly believe 2024 is a year to remain open-minded and flexible, willing to take action if/when we’re wrong.
- we are looking for areas of performance catch-up on the ASX200 as investors are caught long cash – just look at Bitcoin when considering available liquidity for risk assets.
MM is bullish towards small-cap equities
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Only 37% of the ASX200 closed higher on Tuesday, but it was a case of who and by how much which enabled the index to close up +0.13%, i.e. the “Big Four” banks and BHP Group (BHP) all closed higher. Earnings season delivered some mixed results on the day, but a strong intra-day bullish turnaround coupled with the likes of Wisetech (WTC) and Wesfarmers (WES) making new all-time highs was enough to demonstrate the current internal strength of the local market.
- With reporting season coming to an end, the market is looking increasingly comfortable around 7650, and a “pop” to new all-time highs feels like an increasingly likely outcome.
Overnight US markets experienced another quiet and choppy session ahead of important economic data; the Dow fell -0.25% while the NASDAQ 100 edged up +0.2%. One headline which caught our attention was Apple Inc (AAPL US) cancelling work on electric cars and shifting the team’s attention to AI – the relative performance of Tesla (TSLA US) -19% and Nvidia (NVDA US) +60% through 2024 illustrates perfectly how the market agrees with this underlying thematic.
- This morning, the SPI Futures are pointing to a slightly higher opening following a solid session by the Materials Sector in the US.
MM remains neutral toward the ASX200 in the 7650 area
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