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A quiet start to a busy week from a data perspective, the Australian Budget is out tomorrow (not usually market moving), ahead of the US Inflation Data on Wednesday (which is usually market moving). Today, stocks moved in a tight ~20-point range with little conviction in either direction, before a spurt in the last hour pushed the index into positive territory (just).
April witnessed a bearish move by bonds and equities, driven by escalating interest rate fears as “sticky inflation” became a regularly used catchphrase across financial markets. Conversely, so far in May, we’ve witnessed a complete reversion in the market’s thinking/pricing for the future path of interest rates after both the Fed and RBA left rates on hold and delivered less hawkish rhetoric than many feared. Also, for good measure, markets embraced the recent “goldilocks” US employment data, which was a miss on job creation, while monthly wage growth slipped 0.2% from March; the latter was the number that caught most people’s attention.
The ASX200 enjoyed a strong week, closing up +1.6% even after a sharp drop on Thursday when the retail and banking sectors dragged the broader market lower. By Friday’s close, 10 out of 11 sectors on the main board had closed higher, with only the Consumer Discretionary Sector finishing in negative territory. On the stock level, there were some standout performances on both sides of the ledger, while the local index finished 2% below its all-time high, lagging slightly on the global stage:
Todays afternoon note will not be available from Market Matters. We’ll provide an overview of the week in tomorrow’s Q&A Report. Apologies for the inconvenience.
The Market Matters Team
We are making two changes to the Growth Portfolio this morning
The Utilities Sector is not large, making up only 2% of the ASX200 by market cap. However, the sector is up +9.5% in 2024, compared to the ASX200, which has only advanced +1.7%, making it the second best-performing sector behind tech on the main board. With a market concerned about valuations and interest rates poised to fall through 2024/5, defensive plays with solid, reliable yields are likely to maintain their recent solid performance.
A tough session for the ASX today with a confluence of factors combining to hit Property, Financials and Retailers fairly hard. Signs that consumers are starting to feel the pinch of higher rates was the common theme, with both CBA and Judo highlighting an uptick in arrears on the same day that several retailers flagged softer sales.
For more than a decade, Australian fund managers have leapt from one calamity to the next, creating an absolute minefield for Australian investors. A quick look at the charts of Janus Henderson (JHG), Platinum (PTM), and AMP (AMP) tells a clear, painful tale of wealth destruction. Now Perpetual (PPT) has joined the fray, with its share price basically halving over the last few years against a backdrop of a broader market making new all-time highs.
The market was strongest early before tapering off throughout the day, a late spurt putting the ASX200 in the green (just) on a day dominated by company-specific news flow, generally coming out of the very popular Macquarie conference.
Earnings undoubtedly drive share prices over the medium/long term, but when it comes to sharp short-term swings in overall market valuations/sentiment, there’s nothing like monetary policy to dictate terms for stocks, with the RBA front and centre yesterday. The correlation between the local index and 3-year bonds has been extremely close over the last year, which is the major reason MM keeps a close eye on credit markets. The RBA left interest rates unchanged on Wednesday at 4.35%, while they indicated rates would need to “stay higher for longer” to rein in sticky inflation; importantly, there was little suggestion that rates would again start to rise as many had feared. The main pressure on inflation is coming from the strong jobs market, as well as higher petrol prices, which has a knock-on effect throughout the economy – the latter is frustrating when we consider crude oil has fallen 5% in 2024.
