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A last-ditch rally for the market heading into the weekend helped save the month of May. The local market started well before sellers tried to dampen the mood today. The mood picked up late in the day though with a surge into the close which helped bank a +0.5% gain for the month, the ASX200 up +37pts for May.
The Consumer Staples Sector has been very weak on the ASX, significantly underperforming the US equivalent. Unfortunately, there are many “like for like” examples of local stocks delivering dismal returns compared to their US peers. There are a number of obvious reasons behind the recent pullback in the local sector, including wage pressure and a Senate inquiry into supermarket competition and prices. The final report is due to be provided no later than 28 February 2025, i.e. plenty of uncertainty through 2024. We love an inquiry in Australia; we cannot imagine Trump et al. starting many in the US, which by definition helps corporate America.
The ASX was sold off again today as concerns around persistent inflation pushed bond yields higher, making stocks relatively less attractive. While bond yields are an influence, markets are a jigsaw so we shouldn’t get too focussed on one particular piece, even though it is an influential one.
We are selling a stock for a loss, recycling capital into a new position.
Bonds have been driving stocks in 2024, and markets continue to look for rate cuts moving forward. The futures market has pushed back the timing of these well into 2025, while the risks of another hike this year have even crept back into the current pricing. However, a quick glance at the RBA Cash rate since the new millennium shows that after periods of major interest rate adjustment, we often see prolonged periods of no change, i.e. many, many months with a cash rate of 4.35% would not surprise. If today’s AFR story is on point and we won’t see rate cuts until next Christmas, the valuation of some areas of the ASX200 does feel rich.
Stocks were under pressure from the outset today, and a hotter-than-expected monthly inflation read didn’t help, with the ASX taking another leg lower after the data dropped at 11.30am. As has been customary in recent sessions, selling ticked up into the close with stocks ending near the session low, a sign of a tired market.
The questions ran hot yesterday around Boss Energy (BOE), even after we touched on the leading ASX uranium stocks on Tuesday following the news that the company CEO had sold over 70% of his shares in the uranium miner. Also, for good measure, the Chairman and another director also sold smaller parcels of stock. We can see the logic in taking some $$ off the table after the stock/sector’s great run in recent years, but all things being equal, they clearly don’t believe it’s going to double again anytime soon.
The Aussie market struggled without a lead today – US & UK markets closed overnight – so we chopped around in a tight trading range on low volumes, failing to embrace the positive move from US Futures.
At MM, we adopt a “top-down” meets “bottom-up approach” to investing. In other words, we identify the macro-picture and sectors which should outperform accordingly before boring down into the individual stocks which should benefit the most and pass MMs screening. Importantly, within individual sectors there are many different companies exposed to different drivers, and this is certainly the case in Energy sector where the likes of Thermal Coal, Oil, Gas and Uranium, can all be pulling in different directions at once.
Shares mirrored Friday night’s move in the US, starting the week on the front foot, turning around the bulk of the weakness seen on the local market last week. The rally was fairly broad-based with 75% of the index closing higher and Energy the only detractor from a sector point of view. There was little else to watch today given both US and UK markets are closed tonight.
