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The sharp correction by lithium and its related stocks has been the undoing of many portfolios through 2023 after the year started with many investors wanting exposure to the EV revolution – we discussed it as a crowded space at the time, but its demise this year has been deeper than we imagined. Last week saw Lithium prices in China fall sharply to their lowest point in over 2 years after a trial delivery of the critical battery metal to the Guangzhou Futures Exchange indicated a larger-than-expected supply.
A poor session to kick off the new trading week with the ASX seeing the best of it early before broad-based selling took hold, pushing the main board ~70pts below the early highs, as ~65% of stocks lost ground.
The S&P500 is up +8.7% in November, one of its best performances in the last century, with December still to come. Assuming central banks, particularly the Fed, keep off their hawkish Tannoy’s into the New Year, we anticipate a pop to fresh 2023 and potentially new all-time highs in the coming weeks – only 1.3% & 5.7% higher, respectively. Investors are starting to believe that strong businesses are adapting well to higher rates, hence the strong getting stronger & vice-versa.
The ASX200 experienced a quiet week with the US Thanksgiving holiday giving investors and traders alike a reason to take a breather after November’s strong performance – the index rotated in a tight 0.9% range before finally slipping less than 10-points. Under the hood, we witnessed some reversion to the month’s recent moves as the euphoria around falling bond yields abated, Tech & Real Estate were the weakest two sectors, while the influential Energy, Financials and Materials Sectors were the only three sectors which managed to edge higher.
The intra-day trend (chart below) shows the impact of low volumes, and as one trader said today, it’s great to see the ASX also celebrates Thanksgiving! Strength early, weakness late but a positive session to cap off a fairly flat week for stocks.
The last 6-months have been tough on a number of classic mainstay ASX defensives as a kick-up by long-term bond yields weighed on a number of names from CSL Ltd (CSL) to Woolworths (WOW) and Transurban (TCL). Obviously, there are more than just bonds influencing the share price of these companies, but their path this FY has some large similarities with the respective charts, almost perfect overlays in a number of cases.
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.
