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A solid effort from the ASX today given weakness in the US overnight (Dow -404pts) however SPI Futures had implied we’d do better, with the ASX finishing in the green and ~30pts above the early lows. The direction of least resistance is still up with the missing piece just the miners…
We are making several changes to the Active Growth Portfolio
US indices fell for a second day as profit-taking washed through the “Magnificent Seven”; the NASDAQ closed down -1.8% while the Russell 2000 (small cap) index fared better, finishing down just -1%. Apple Inc (AAPL US) tumbled 2.8% after reports that iPhone Sales had plunged 24% in China, while Tesla (TSLA US) -3.9% and Microsoft (MSFT US) -3% also struggled, both actually underperforming Apple. Outside of technology, Target Corp (TGT US) popped +12% as another retailer beat earnings estimates. Even Bitcoin experienced some profit-taking overnight after posting a fresh all-time high above $US69,000. The cryptos intraday ~10% swing demonstrated it’s not an asset class for the faint-hearted.
A choppy session for the ASX although it traded in a tight ~30pt trading range overall with Lithium stocks giving back some recent gains on two pieces of negative news, while Gold equities enjoyed the breakout in bullion prices.
As global equities continue to post new all-time highs, we have to embrace the bullish trend until further notice; from a technical perspective, the MSCI World Index is in a “buy the dip” cycle unless we see a break back below the 3150 level, or just over 6% lower. Many investors, including ourselves, thought equities might struggle to add to their late 2023 gains, but the grind higher has been unrelenting, and as the likes of the Nikkei and Bitcoin have demonstrated, there’s plenty of money looking for a home, remember the more than $US2.5 trillion in cash reserves being held by private equity looking for an opportunity, enough money to buy the ASX200!
The ASX hit record highs early on before some profit-taking kicked in mid-morning. Selling was pretty benign with the index falling around -0.4% from highs to the close driven by softer Business conditions data which showed a larger than expected fall in inventories in Q4, likely to weigh on GDP growth. Small caps continued their push higher though, the Small Ords closing at a new 52-week high today.
In early February, one of the most dominating stories in the financial news was the plunging lithium price and demise of the related stocks. Less than 2-years ago, analysts were extrapolating huge demand for EVs over the decade ahead would continue to push the required materials, such as lithium, cobalt and nickel, ever higher, generating huge profits for the related miners, but as we now know, the demand for EVs has fallen short of estimates, especially in the influential US, which combined with increasing supply of lithium drove down prices over 80%, i.e. in this case making the market not wrong, but very wrong! However, all good things usually come to an end and in the case of the lithium “shorters” last week was a tough one, with heavyweight Pilbara (PLS) bouncing +19.4% taking it up +10.9% year-to-date.
The ASX waved goodbye to reporting season at the end of last week and immediately focused on the new business at hand, making fresh all-time highs. Come Friday’s close, the index had advanced +1.3% for the week, breaking clear of the psychological 7700 level in the process. The main movers on the stock level were related to the tail end of the reporting season, but there were noticeable strong moves from the ESG and tech stocks, which helped both the index and market sentiment.
A strong session to end a strong week at new record highs, the 6th weekly gain from the last 7 with investors happy to buy stocks after a good reporting period where beats outnumbered misses, and earnings in most parts held up well. At an aggregate level, earnings estimates have been revised lower, however, the driver is resources on weaker commodity prices, a backward-looking indicator in MM’s view, and the broader market has been resilient.
The number of stocks advancing and declining can give a good read-through on the health of the underlying market; for example, at MM, we often refer to “broad-based” buying. The difference between the advances & declines is usually referred to as the market breadth with the running cumulative total of daily breadth known as the Daily Advance-Decline Line, an important read on the market’s underlying health as it provides another tool to quantify the movements of the market other than looking at the price levels of indices. We often read about how the “Magnificent Seven” are driving US indices on their own, but the below chart illustrates the internals are still firm, although, of course, from a points perspective, they are aiding performance.
