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The ASX200 edged +0.7% higher last week as easing bond concerns saw the rate-sensitive stocks/sectors recover strongly. However, some of April’s best-performing areas of the market encountered some profit-taking. For example, the Real Estate +3.2%, Tech +2.3%, and Consumer Discretionary +2.1% sectors advanced strongly, whereas the Materials Sector slipped -0.3%
A solid session to end a choppy but overall positive week for stocks with some big moves playing out across the market. The rate-sensitive sectors in Real-Estate & Property were the main winners for the week showing strong reversion from last week’s move. This ongoing uncertainty around interest rates is clearly having a big influence, however, if MM is correct, the next move in rates will be down which will be supportive of equities overall, hence we’ve maintained our bullish bias towards stocks.
Following NAB’s solid result yesterday, we’ve looked at the Diversified Financials this morning to evaluate if any opportunities are presenting themselves in the current volatile market. This is one sector of the ASX where the saying “not all boats float as one” has been very accurate, the below list of performance through 2024 demonstrates the point perfectly:
Winners: Netwealth (NWL) +28%, AMP (AMP) +15%, Pinnacle (PNI) +14%, HUB24 (HUB) +9%, and Insignia Financial (IFL) +3%.
Losers: Block Inc (SQ2) -9%, Perpetual (PPT) -8%, Magellan (MFG) -6%, Helia (HLI) -6%, and Soul Patts (SOL) -3%.
An interesting session today coming off a volatile last hour in the US where markets surged higher and then gave back all of their gains following the Fed Decision on interest rates. Traders were looking for a big move either way, so derivatives had been piled on, the most in around a year, however, Jerome Powell ‘threaded the needle’ and did a good job of articulating the Fed stance, which is rates may remain higher for longer, but they’re unlikely to go up. The ASX opened marginally higher this morning, rallied then pulled back late as US Futures made gains during our time zone.
As equities have struggled over recent weeks, we’ve been asked several times whether this was a good time to allocate additional capital into the market, hopefully through Market Matters Invest, i.e. the portfolios we manage that are open for investment. While we provide general advice only and do not take into consideration any individual investors personal circumstances, we are still bullish towards equities over the medium term primarily because we see interest rate cuts unfolding over the next 12-18 months, a very bullish backdrop for stocks. We believe that active management can deliver strong risk-adjusted returns for investors, and our track record supports this claim.
The local market wasn’t immune to the equity rout in the US overnight, all sectors closing lower today to give back all the gains that started this week. There was some effort to support the ASX intraday, staging a ~40pt rally from early lows to early afternoon, however, the risk-off trend picked back up into the afternoon as trades took exposure off ahead of the Fed interest rate decision due out tomorrow morning our time.
The infamous May is upon us, although, as we’ve pointed out recently, the ASX200 has rallied through 6 out of the last 10 Mays, delivering investors an average small net gain. Subscribers who like to watch the market seasonality closely should be far more concerned by August and September; the average loss over these 2-months over the last decade is 3.84%. At this stage, we remain net bullish towards the ASX, especially when we reference the highly correlated Canadian TSX and UK FTSE indices, with the latter again notching new highs early in last night’s session. However, two of the market’s recent strong characteristics continue to prevail, and they need to be understood to add alpha (performance) to portfolios.
A positive session to end a tough month for markets with the ASX dipping 2.95% during April, offsetting much of the strong move in March. That said, the ASX 200 remains only 3% below its all-time high despite some significant changes from a macro perspective during the month as inflation remains ‘stickier’. At Market Matters, we’ve remained bullish equities and we continue to believe that’s the right medium-term approach, albeit in a three-step forward, two-back sort of trend.
Investors are rapidly losing confidence that some major central banks will cut interest rates in 2024, while the local futures markets are becoming increasingly confident that the RBA will actually hike before Christmas. At MM, we believe the rate cuts will come, but investors may need to be patient as it wasn’t that long ago that central banks read the inflation picture incorrectly, which led to the aggressive rate hiking cycle through 2021/2 in an attempt to put the “inflation genie back in the lamp” a goal that hasn’t yet been fully achieved. The point is they don’t want to get it wrong again and cut too early only to have to hike soon after as strong economic activity reignites inflation.
A very strong bounce-back from the ASX today, particularly in the rate-sensitive sectors that were hit hard last week on changing interest rate expectations; Real-Estate and IT in particular having a day in the sun, although more than 90% of the market closed higher, recouping nearly half of Fridays aggressive sell-off.
