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The ASX200 continued to deliver polarised performance across its major sectors; on Monday, the banks advanced strongly, led by National Australia Bank (NAB), which hit fresh multi-year highs, while the major miners continued to make fresh multi-week lows. As we enter the home stretch for FY24, the relative sector performance differential is one of the greatest we can recall:
- A portfolio weighted towards tech and financials has significantly trumped one heavily exposed to the Resources Sector.
As we’ve discussed previously, this elastic band could stretch further into June 30th, but what comes next is the important question. In a nutshell, MM believes AI is a very real structural shift whose benefits will reach well beyond Nvidia (NVDA US). However, as we’ve witnessed with lithium, optimism can stretch way too far before a reality check delivers what is likely to be no more than a healthy correction. We are investing in extremely exciting times that can deliver solid returns for flexible and open-minded investors.
- The ASX200 sector performance will largely depend on China through 1H25 as the major miners continue to fall further behind – more on the world’s 2nd largest economy later.
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ASX200 Sector performance in FY24: Source Blomberg
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ASX200 Sector performance in FY24: Source Blomberg
After making new lows for June, the local market has traded in a tight 163-point range so far this month, which could easily double if we match the average of recent years. Our concern is that we’ve struggled while the S&P500 has forged ahead to fresh highs. If it just pulls back ~5%, the ASX200 is likely to be retesting the 7500 area, especially if the miners remain under pressure.
Wall Street started the week in a positive mood, with the S&P500 gaining another +0.8%. “Big Tech” again did the heavy lifting, led by Apple Inc (AAPL US), which added another 2%. Monday’s advance came after the S&P 500 and Nasdaq had already posted seven from eight weekly gains. Both major indices continued to forge to fresh all-time highs as the “Goldilocks Scenario” gets embraced, i.e., the economy will remain resilient, but inflation will cool, allowing the Fed to start easing rates.
- The ASX200 is set to open up +0.4%, with BHP still underperforming, closing flat in the US.
MM is neutral toward the ASX200 around the 7700 level
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This morning, as we approach the EOFY, we’ve updated our thoughts on three stocks that plumbed fresh 52-week lows just when tax loss selling is on many investors’ minds. The last 12 months have witnessed numerous examples of the weak getting weaker and vice versa. Hence, taking some pain and selling the underperformers sooner rather than later has generally been a good play, as evidenced by sales in Pilbara Minerals (PLS), Lendlease (LLC) and Orora Ltd (ORA) – it hurt at the time but would be far worse today.
- Cutting losses can be every bit as important as picking winners for overall portfolio performance.
