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We are tweaking the Active Income Portfolio.
Equities accelerated higher last week after the US Fed left interest rates unchanged and, more importantly, they pivoted towards rate cuts in 2024—the sharp U-turn by Jerome Powell et al. changed the investment landscape moving forward from a matter of when not if the Fed would cut rates next year. The dramatic dovish change after the 3rd FOMC meeting, which left rates unchanged, saw Bank of America pencil in a 90% chance of a cut by March while the Fed members clearly expect to be active next year.
The ASX200 surged higher last week after the Fed officially pivoted on rates, giving some Christmas cheer to most share market investors around the world. The ASX200 ended the week up +3.4%, led by gains across the rate-sensitive names as bond yields dived lower, e.g. Real Estate +5.3%, Tech +4.8%, and Healthcare +4.2%. However, gains were broad-based with all 11 major sectors closing higher, with only the Utilities failing to advance more than +1.75%.
The strong momentum continued today, though this time led by the resources sectors as commodity prices found their feet. Shares finished ~0.3% off their highs with some profit taking through the afternoon but today’s rally makes it the 6th consecutive positive day for the ASX200 which is now up ~10% since the late November low of 6751. This week alone the index was up +247pts/+3.44%, higher for the third consecutive week
This week’s recent dovish tilt by the Fed has made us tweak our already bullish outlook higher; now, we wouldn’t be surprised to see the ASX200 make new all-time highs in 1Q of 2024 – Never say never! Ever since the GFC over 15 years ago, the ASX200 has been trending upwards with a few 15-20% corrections along the journey. Interest rates have been the main driver of valuations and sentiment during this time. We see no reason for this to change, i.e. stocks are in a sweet spot after the Fed’s comments on Wednesday night, but as the previous German Bund chart illustrated, we are already well into the pullback in yields MM has been flagging over the last few months.
The market opened with a bang this morning, up ~100pts and held onto the gains for the day after the US Federal Reserve left interest rates on hold and pivoted towards rate cuts in 2024 – huge news, arguably as good as it gets for equities, the perfect backdrop for a blow-off high into 2024. The rate-sensitive sectors did best, but it was a day in the sun for nearly all ASX stocks with 85% of the ASX200 finishing higher.
The strength across iron ore names has been garnering plenty of air-time over recent days, with Fortescue (FMG) making new all-time highs yesterday as the bulk commodity hovers around the $US135/mt level – to put things in perspective, the Australian government’s budget forecast assumed iron ore would be trading around $US60/mt, at least this wrong call was beneficial with the budget improving daily. We believe BHP’s chief economist, Huw McKay, was on the money this week when he said, “This is an incredibly sweet spot for the industry”, as the printing presses keep rolling at the likes of BHP and RIO.
The ASX200 added to December’s gains today, taking it up more than 2.4% for the month, and we still have more than half of the month left. As we’ve said a few times of late, as we head into the seasonally strong fortnight for stocks, the index is looking good for at least a retest of the 7400-7450 area, now only two good sessions away.
The ASX200 added to December’s gains on Tuesday, taking it up more than 2%, and we still have more than half of the month left. As we’ve said a few times of late, as we head into the seasonally strong fortnight for stocks, the index is looking good for at least a retest of the 7400-7450 area. The broad market was again firm on Tuesday, with no sectors falling and over 70% of the main board ending the session higher. Apart from the strong performance of the tech names, the influential banks and major miners have remained firm over recent weeks.
Another session where a lack of selling was obvious across the market as 10/11 sectors made gains headlined by technology stocks as they sprang back to life led by heavyweight Xero (XRO) +3.79%, a classic illiquid stock squeezing up into Christmas. Not a lot to cover this afternoon, so a short & sharp missive for a Tuesday….
