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A strong session eventually played out today, with the index +70pts from the morning (11 am) lows, trading to all-time highs in the process (7703.8), and closing the month just 5pts below the milestone (7698), a good outcome and as we’ve been suggesting, it seems the market is priming itself for an ultimate breakout, we just need the support of the influential materials sector!
We’ve written a couple of times this year about the ASX losing stocks faster than it replaces them with quality IPOs, with the Building Sector epitomising this trend:
• CSR looks set to be swallowed up by French giant Saint-Gobain in a $3bn deal.
• The Stokes Group has bid to take full control of concrete business Boral (BLD) – it already owns 71.6%.
• Cement maker Adbri (ABC) has agreed to a $2.1bn buyout from Irish giant CRH Group.
This morning, we’ve taken a look at the depleted lineup of ASX’s building stocks to see if we perceive any value remains after the major M&A action in the sector.
Early gains were given up swiftly today, the high set just 10mins into the session up ~20pts, but trading lower by 10.30am before chopping around breakeven for the day from there. Some big hitters going ex-dividend today – Telstra (TLS), Fortescue (FMG) & Woolworths (WOW) – weighed on the cash market outcome. The monthly CPI print landed late this morning, coming in at 3.4%, below the 3.6% expected, however, this failed to have a meaningful impact on equity markets.
On Monday night the major US indices slipped lower, with the S&P500 ending the quiet session down -0.38%, but the underperforming market segment of the last two years, the small caps, managed to advance +0.6%. This trend extended overnight, with the S&P500 edging up +0.1% while the Russell 2000 (small cap) Index rallied +1.4%. It may surprise many subscribers to know that the unheralded US small caps have advanced +25% from their October low, slightly more than the S&P500 without any of the benefits of the “Magnificent Seven”. We see no reason to fight this new area of outperformance, albeit minor, through 2024.
A good turnaround from the market today recovering ~50pts from the morning lows to close marginally higher, it feels like it wants to go up with BHP and co the key. If the resources can bounce here we’d be surprised if the market didn’t breakout and look to test ~8000 in short order.
We are amending the Active Growth and Emerging Companies Portfolios.
The ASX food stocks have endured a tough time since COVID significantly underperforming the broad market, which has largely rallied strongly over recent years. However, over the last two months, after plumbing fresh 6-year lows in early 2024, the sectors enjoyed a sharp +23% advance, with only Inghams (ING) underperforming the ASX year-to-date. In contrast, old market favourite a2 Milk (A2M) is leading the charge, having rallied almost +40% so far this year. The risk/reward still looks good around current levels as the sector embarks on a correction of 3-4 years of underperformance, but we are cognisant that the 8000 level has contained the index over the last three years, i.e. now only ~2% away.
A lot of action under the hood today with a mixture of M&A and earnings results. Alcoa lopped a bid for Alumina (AWC) and Aussie Broadband (ABB) had a tilt at Superloop (SLC, while Nanosonics (NAB) was hit on a weak outlook while Kogan (KGN) did the opposite as they continued their post-COVID recovery.
Earlier this month, the Uranium Sector was one of the hottest in town, with Paladin (PDN) and Boss Energy (BOE) both up ~50% after only a few weeks of 2024, but here we are approaching the end of February, and the vast majority of the gains have evaporated in the blink of an eye. US giant Cameco Corp (CCJ US) was the catalyst after reporting its FY23 results earlier in the month.
Last week, the ASX200 was again dominated by the reporting seasons in both Australia and the US; while the broad index edged down just 15-points with plenty of well-known stocks signing off the week with double-digit gains or losses, led by American AI goliath Nvidia (NVDA US) which ended the shortened week up ~10%. It was a relatively quiet week on the economic front, with bonds taking a breather while the Tech Sector rallied +3.3%, aided by the Nvidia euphoria. Conversely, the consumer Staples tumbled -3.4% after the shock weak update from Woolies and the departure of the CEO.
