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As the market slips into the Easter long weekend, some profit-taking felt evident on Tuesday, no great surprise considering the index has rallied over 15% from its November low. The afternoon selling wasn’t overly aggressive, but as we touched on yesterday morning, the markets are a touch bullish and long; hence, some book-squaring/selling by the weak longs didn’t encounter any significant resistance. One of the main themes of 2024 to date has been the strong getting stronger and often the weak getting weaker, even as the ASX200 forged to fresh all-time highs. A quick glance at some sectors three months into the year tells the tale: remember, the index is up a healthy +2.5%.
Winners: Tech +24.4%, Real Estate +12.6%, Consumer Discretionary +10.1%, and Financials +10%.
Losers: Materials -9.7%, Consumer Services -2.2%, Consumer Staples -1.7%, and Utilities +0.2%.
We’ve also mentioned the market’s “3 steps forward, 2 back” dance since it started making fresh highs in January, but as we all know, in financial markets, nothing lasts forever. The dramatic outperformance by tech names over resources is easy to comprehend, but elastic bands do have a tendency to snap if they are pulled too hard, in this case, China is the elephant in the room:
- Tech – The “Magnificent Seven” might be distilled down to 4-5 stocks through 2024/5, but unless AI proves to be a white elephant, the sector will continue to churn out huge profits with exciting growth over the foreseeable future.
- Materials—As we said previously, this is a China story; the miners need the world’s largest consumer of raw materials to recover from its painful property crisis and return to vibrant economic growth—Beijing’s clear objective.
MM believes some performance reversion is on the horizon
A couple of stocks caught our attention on Tuesday from very different ends of the performance spectrum to illustrate this characteristic:
- Commonwealth Bank (CBA) has rallied 6.25% to fresh highs in 2024, plus it paid an attractive $2.15 fully franked dividend in February. This is a classic case of the cream rising to the top, with Australia’s largest and best bank taking even its usually rich premium to a new extreme. We can see CBA consolidating in the $110-120 region, but we disagree with Macquarie that it’s a sell. Our label would be Hold and Buy into dips.
- South32 (S32) has slipped over 11% this year, and a break of its recent $2.75 low looks very likely. At MM, we’ve patiently avoided this diversified miner over the last year, and with things looking poor with Manganese operations offline, the time to don a contrarian hat may be nigh. Our label would be “accumulate into weakness.”
MM likes both CBA and S32 through 2024
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The ASX200 fell away on Tuesday as a lack of buying was evident ahead of the Easter long weekend. Short-term traders and investors would find it easy to justify sitting on the sidelines over the coming week with uncertainty outweighing the likely upside in a decreasing volume market and with the index hovering around its all-time high:
- The important monthly CPI inflation data for Australia is out at 11.30 am this morning, with 3.5% expected YoY.
- The local Retail Sales print is due on Thursday, with an expected print of 0.4%.
- Good Friday will see the key US personal consumption data, which feeds into the all-important inflation picture, alongside a speech by Fed Treasurer Jerome Powell, both while markets are closed!
We’re still bullish, but our view that stock and sector rotation is the key to outperformance through 2024 has not wavered. Subscribers should see a few alerts over the coming months as we tweak our portfolios, looking to add value/alpha to the edges.
- This morning, the SPI Futures are pointing to a 0.2% dip early on following the choppy and quiet session on Wall Street, which ultimately ended with a whimper.
MM remains cautiously bullish toward the ASX200 around the 7800 level
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