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The Australian Healthcare Sector has surged ~30% since late October, and although we are bullish over the coming years, a period of consolidation is overdue, and an 8-10% pullback wouldn’t surprise – at current levels, we aren’t looking to increase our exposure to the sector, pretty much in line with our view on the market in general. The sector has shown a strong inverse correlation to bond yields over the years, falling sharply when bonds rally/yields fall and vice versa. MM’s macro outlook is yields will fall through 2024/5 but not as fast as many hope, and the futures are pricing, another reason why we can see a pullback following the recent strong advance.
Another small gain for the market today took the ASX200 to around 1% below the all-time highs set last week. The banks did the heavy lifting, the Big 4 accounting for around half of the gain by the index, joined by strength in Tech, Utilities and Real Estate.
Reporting season throws up increased volatility on the stock level, illustrated perfectly by the +20% surge higher by Facebook parent Meta Platforms (META US) last week. However, when the market is positioned very bearishly towards a stock, and it beats or isn’t too bad, the move can be exaggerated on the upside as shorts look to buy back stock &/or fund managers attempt to get some exposure before it gets away from them. While shorting can get a lot of headlines, it is difficult to consistently get right and big losses from shorts are common place. When short a stock and it rallies, the problem gets bigger/worse, unlike a bought stock that goes down, the problem gets less influential on returns. Buying heavily shorted stocks can at times yield strong, quick gains.
With the RBA call now out of the way, the market focused on stimulus in China and some better-than-expected earnings reports, lifting the index after two weak sessions. Beaten-down resources stocks bounced aggressively, but Utilities & Real Estate was the winner today. Some M&A news caused Energy to underperform, while the consumer-facing sectors also lagged.
We are buying a resource stock in the Active Growth Portfolio
The ASX200 fell another -0.6% on Tuesday, with over 60% of the main board closing lower, the Energy Sector being the lone wolf that managed to close up. The Resources Sector again caught our attention after ongoing measures by Beijing to stem the rout in their equities market helped the Shanghai Composite to rally over +3% following a number of announcements, including the state funds vow to boost stock purchases – a reason to cut any China facing shorts in our opinion.
A choppy session with the ASX down ~80 points early and in quick succession too before recovering ~50% of the morning declines. Reporting starting to kick into gear while the RBA took centre stage this afternoon in a new format meeting + a press conference to boot!
On December 6th, we held a Webinar “Analysing our seven highest conviction calls”, which we believe has fared pretty well over the last two months, but in today’s market, we cannot be complacent, needing to evaluate our positions and views constantly. We strongly recommend subscribers revisit the webinar, which covered the seven stocks and explained some of the Market Matters website’s exciting functionality.
A soggy start to the week for the ASX as weakness in the resources sector weighed heavily on the broader market, although banks traded well up from their session lows and healthcare stocks showed some backbone.
Social Media giant Meta Platforms surged after their results beat analysts’ expectations, and they announced the company’s first-ever quarterly dividend plus a $US50bn share buyback program, i.e. a greater than the entire market cap of Macquarie Group (MQG). Of the “Magnificent Seven,” last week we saw Meta Platforms (META US), NVIDIA (NVDA US), Amazon.com (AMZN US), Alphabet (GOOGL US), and Microsoft (MSFT US) all make fresh all-time highs while Apple Inc (AAPL US) and Tesla (TSLA US) struggled, plus Alphabet (GOOGL US) had reversed lower come Friday, in other words, its become the “Dominant Four”, not traditional broad-based buying but its proving hard to fight the tape at this stage.
