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We are making several changes across portfolios
US equities continue to punch higher with a large degree of “catch-up” unfolding across the board, e.g. while the small caps surged +3.5%, the high-flying Nvidia (NVDA US), Microsoft (MSFT US) and Alphabet (GOOGL US) all declined as investors appeared to go in search of value. The Dow rallied 740 points, delivering its best day in more than a year and posting new all-time highs in the process. Reporting season has kicked off positively, while Industrial bellwether Caterpillar (CAT US) up over 4% overnight, trumped by United Health (UNH US), with the insurer surging +6.5% after delivering better-than-expected second-quarter results. The Financials advanced again after earnings from Bank of America (BAC US) and Morgan Stanley beat analyst expectations, with BAC jumping more than 5%.
A day of consolidation for the ASX with the market getting used to the ‘8 handle’, as recent trends extended i.e. Property up ~1% and resources down ~1% with the hangover of weaker Chinese growth lingering over the sector.
Monday saw all 11 sectors close higher, with the “Big Four” banks, BHP Group (BHP) and CSL Ltd (CSL), all adding to the day’s +0.7% advance. However, less than 70% of the main board closed higher, with buying solid rather than euphoric. The only pocket of the Materials index that struggled after the assassination attempt on Former-President Trump was the lithium/ESG names, with the Republican candidate surging ahead of Biden at the Bookies, e.g. Liontown Resources (LTR) -3%, Pilbara (PLS) -1.3% and IGO Ltd (IGO) -1.2%. A Trump victory is good news for oil & gas as opposed to EVs, etc., as he intends to reverse Biden’s climate policies.
The market smashed through 8000 this morning on a clear breakout of its nearly 6-month-long trading range, hitting an early high of 8037, before tapering off into the back end of the session following softer Chinese GDP. All 11 sectors were higher, though most buying was targeted in the large caps with the Small Ords finishing flat.
The 2nd week of July enjoyed a dovish testimony from Jerome Powell and a lower-than-expected US CPI print (inflation), both bullish for equities, but some sectors more than others. We are now looking for bond yields and interest rates to turn lower over the coming year, which should drive some reversion on the stock/sector front. At MM, we constantly evaluate our performance from a service (survey coming this week) and portfolio performance perspective, and the standout factor of the latter is that our outperformance has come from sector and stock tilts i.e. focussing on being in the right sectors & stocks at the right time, rather than picking market direction
The ASX200 finally popped to fresh all-time highs on Friday, and it looks set to deliver another stellar performance for July—we’re less than halfway through, and it’s already up +2.5%. Over 80% of the main board helped lift the index towards the psychological 8000 level, with the rate-sensitive name leading the advance while the resources stocks continued to rein in the gains.
The market broke to new all-time highs today, and held them, underpinned by broad-based strength with 85% of the ASX 200 ending the session higher, though there was an obvious change to market leadership, with property and consumer discretionary i.e. interest rates sensitive sectors leading the line, while small caps outperformed large.
We are making two changes to the growth portfolio today.
Will it be 3rd time lucky for the local market to attempt to break out to fresh all-time highs? We believe the answer is yes, but it certainly feels like it’s now or never, as global equity markets position themselves for lower interest rates without pricing in any meaningful risk of a recession. As for politics, equities are saying who cares if France has an unworkable government and the US is on course for a second term of a Trump Presidency. Investors are focusing on the prospect of declining interest rates while ignoring rising valuations and macro uncertainties percolating beneath the surface. This will change at some time, but for now, it’s a dangerous game fighting the bullish tape, particularly if US earnings season delivers.
