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Weakness across resources weighed on the ASX200 today with Iron ore taking a breather from its recent rally and oil markets on the back foot as OPEC uncertainty weighs on Energy markets. Volume was light and is expected to remain so into the weekend given the US Thanksgiving Holiday takes place tonight. With little reason to make a conviction call today and a large portion of the index facing a commodity headwind, the index closed on session lows.
The Insurance Sector caught our attention on a lacklustre day for the ASX, with a number of the main players enjoying a bid, e.g. QBE Insurance (QBE) +2.1% and Suncorp (SUN) +1.9%. This is one sector that generally enjoys higher bond yields as companies hold premiums in fixed interest before claims roll through; hence, with higher yields, this float simply earns more interest. We all know the RBA has hiked rates from 0.1% to 4.35% in around 18 months, providing a tailwind for the sector
The best of it was seen early today with the index pushing up on open, only to lose steam from midday onwards and trickle lower into the close – still, there is not a lot of new impetus to sell the market, and as one fund manager we had lunch with today who looks after $10bn+ said, volumes are becoming tough when moving around the market at size, in other words, it’s paying to be smaller and nimble in this environment.
The ASX200 enjoyed a solid Tuesday on the index level, but with less than 55% of the main board rallying, it was left to the influential big banks and miners to perform the heavy lifting, enabling the index to advance +0.3%. The sectors continue to jockey for position with a performance baton into a Christmas Rally potentially at stake. The last week has seen a clear difference on the performance front, with our preferred scenario being more of the same into Christmas:
Winners: Resources, Tech, Real Estate, and Healthcare.
Losers: Energy, Utilities and Consumer Staples.
A solid session for the ASX today and as John Bowie Wilson (JBW) exclaimed on the desk, the market doesn’t look like it wants to go down! Resources back in favour with some good moves across the sector, particularly in the commodities we like (Copper, Uranium & Gold) which suits current portfolio positioning, while as we alluded to this morning, Tech is starting to look a bit tired.
A year ago, we went overweight the Tech Sector, which, after a few false dawns, eventually proved an excellent value add for portfolios. However, unfortunately, the local market failed to keep pace with the “Magnificent Seven”, i.e. the FANG+ Index hit fresh all-time highs overnight. In contrast, the local tech sector languishes over 35% below its 2021 high. We have now adopted a neutral stance towards US Tech. However, further upside is likely over the coming weeks; we are currently focused on levels to reduce exposure as opposed to increasing.
A quiet Monday to kick off the new trading week with the index failing to live up to the levels implied by SPI Futures on Saturday morning. A tick over 50% of the main board traded higher, however it was a session void of any real impetus in either direction – Banks up a touch, resources mixed and a bit chop-chop elsewhere!
We are making multiple changes to the Emerging Companies Portfolio.
Global equities have bounced strongly over the last few weeks, with US Big Tech leading the charge; the FANG+ Index has surged over +17% in a matter of weeks, closing on Friday within a good day of fresh all-time highs. The “Big Tech Stocks” performance year-to-date is reminiscent of bull market days. However, 2023 has only been about a handful of stocks, the “Magnificent Seven”, with 50% of the S&P500 struggling to stay in positive territory in a year where the S&P500 index is up a healthy +17.6%.
Last week was a volatile but overall positive time for the ASX200, with the local index finally closing up +1.05% after registering a fresh 7-week high on Wednesday following a market-friendly US CPI (inflation) print on Tuesday night – it hasn’t been one-way traffic, but the drop by the local 3-year yields from 4.24% to 4.1% provided a sufficient tailwind to push stocks higher. The market reacting positively to falling bond yields is nothing new, but what did catch our attention last week was some performance catch-up/reversion on the stock level as we approach 2024, perhaps a combination of bond yield optimism and book squaring:
