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A weaker session for the ASX, and with no lead from the US we were left to key off marginally softer European markets while Asian stocks also tracked lower during our time zone. Banks lost some of yesterday’s gains while property stocks also fell.
We are making changes to 2 portfolios.
The ASX200 embraced the RBA pause yesterday rallying +0.6% after the announcement on fairly broad-based buying that saw over 70% of the main board close higher, positive sentiment was compounded by a fresh bout of M&A action with Costa Group (CGC) and Austal (ASB) reminding Active Investors like ourselves that stocks will only remain undervalued for so long before the buyers surface. All local stocks need now is further economic stimulus from China and a break out to all-time highs will be back on the table, now less than 5% away.
A positive open for stocks before the index tracked lower ahead of the RBA decision on interest rates at 2.30 pm – no change to rates – the market rallied, particularly the financials and property stocks buoyed by some respite to cost of living pressures. About half of the professional forecasters had expected a hike, while interest rate futures were pricing a ~20% probability of a 0.25% move.
In the 1H of the year investors have been prepared to pay increasingly high prices for earnings certainty, propelling some stocks ever higher, while pushing others, ever lower. At MM we believe a period of performance catch-up is on the menu for some of the more ‘unloved’ names of FY23. When we consider Woolworths (WOW) as an example, it’s easy to comprehend why cautious investors have ploughed funds into this well-managed retailer of necessities that enjoys scale across their supply chain, however, when investor perception does shift, we believe stocks like WOW could be used as ‘funding vehicles’ for a foray up the risk curve.
The first session of FY24 was a positive one for local stocks with the market grinding consistently higher throughout the day to close on session highs. There seemed to be an overarching trend today that saw some of the ‘FY23 dogs’ attract buying with the discretionary retailers the most obvious example at a sector level – perhaps confidence is growing around a ‘soft landing’ as inflation cools and central banks look to a least pause on rates.
We are looking forward to the many twists and turns over the next 6 months, so far calendar 2023 has been ok for local investors with the ASX200 eking out a +2.3% gain plus dividends. Equities have ground higher in the face of many headwinds since late 2022 including central banks hiking interest rates far more aggressively than many previously forecasted. A year ago economists were largely calling for the RBA Cash rate to peak around 4%, now there are plenty flagging the 4.85% level. At MM we now believe they’ve become too hawkish and that global bond yields are approaching an inflection point i.e. a top.
The ASX200 edged higher on Friday in a pretty uneventful conclusion to what’s been a fascinating Financial Year, by now subscribers know that the broad-based market has shrugged off a blanket of negativity to end the year up over +10%, plus of course dividends. However, it’s now time to look forward, not back, as the market toys with the idea of peak interest rates this side of Christmas but pessimism persists towards earnings over the next year. A very famous investing/trading book called Reminiscences of a Stock Operator by Edwin Lefevre, which we highly recommend for “students” of the market, has a couple of sayings that we believe accurately reflect the position of both the last few and next few years:
A quiet session to wrap up FY23, a year where central banks have hiked interest rates at an unprecedented speed taking them to fresh 11-year highs, the US experienced a Banking Crisis, China’s economy was buffeted from aggressive COVID lockdowns and war was waged on Ukraine, to name just a few of the headwinds for equities. The fact the market in price terms has risen more than 10% is just another example of why we, as investors, need to keep an open mind and not let investment decisions be impacted by the barrage of negativity that dominates mainstream press.
We are amending the Flagship Growth Portfolio
