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MM is making multiple changes to portfolios today.
A month ago we posed the question “When should we rotate between gold, coal, and lithium – Part 2.” After watching gold slip $US40 like a proverbial knife through butter in the early hours this morning we thought this morning was an ideal time to revisit the sector especially as we hold a chunky 8% of the Flagship Growth Portfolio in Evolution (EVN) and Newcrest (NCM). Although we believe gold is likely to retrace its recent advance short term we believe second-guessing such a move could easily prove costly with regards to portfolio performance i.e. at MM we are investors, not traders.
Another fairly flat session by the ASX today, although it’s looking tired and we wouldn’t be surprised to see a near-term top evolve with the first signs of money transitioning from the edgier, high-beta areas into the more defensive plays. Still, with negative market positioning (high cash levels + high bond ownership v equities) very obvious we wouldn’t be running for the hills, meaningful tops don’t often correlate with pessimistic positioning – but a pause, consolidation, and a shallow pullback could easily play out.
The Australian market retreated on Tuesday with heavyweights BHP, CBA, and CSL all closing lower during another lacklustre session that saw over 60% of the mainboard retreat but only 2% of the ASX200 moved by over 5%. The markets are enveloped in negative sentiment yet the Australian market is only ~3.5% below its all-time high as investors await the perceived “inevitable correction”. However, as we’ve been saying if too many people are overweight cash and looking to buy dips such moves are usually shallower than expected.
A slow day for the market with a lot of fundies away for School holidays + finding compelling value is getting harder given the market’s recent run. Sometimes it’s best to sit tight and it certainly felt that way today in what proved to be a choppy but overall negative session for stocks with 65% of the index closing lower.
The new Australian Treasurer has inherited a whole pile of debt from the Liberal Party post-COVID and as would be expected he’s looking for pots of gold to replenish the coffers. The oil & gas industry is both cash rich and unpopular as we strive to live in a greener world i.e. it’s a prime candidate trumping the likes of Super and negative gearing in any popularity contest. We believe it’s inevitable the government will plunder their earnings as the huge profits roll in for the industry, yesterday Macquarie Group estimated such an increased tax would devalue heavyweight Woodside (WDS) by 2-5%, but we believe this is already largely priced into the sector.
The local market kicked off the new week by adding to recent gains, hitting a 2-month high in the process. Financials continued their recent form to boost the index, rallying on the back of a better-than-expected start to the quarterly updates from their US peers.
Growth stocks and in particular the tech space are inversely correlated to bond yields, in other words when interest rates rise the likes of Apple & Google struggle. Bond yields have experienced a decent correction over the last month with the rate-sensitive 2 years falling from above 5% to sub 3.6% which has translated to an extension of the period of outperformance by growth stocks over value which commenced in Q4 of 2022 when yields simply slowed their ascent – the US 2 years closed back at 4.1% after the hawkish comments from the Fed on Friday.
The ASX200 closed up another +2% last week taking the index within 3.6% of its all-time high, nervousness might be at an extremely high level but local stocks are defying the disbelievers and threatening to break out on the upside. For the doubters, there’s always something to worry about just around the corner but as we keep pointing out when the bears are at their most vocal stocks rarely fall:
There was a delayed reaction to strength seen overnight on the local market today which rallied strongly out of early session lows. Materials were the standout with a broad rally from the sector, though Gold stocks were the key contributors as the precious metal cracked 1-year highs. Financials were also strong despite a soft update from one of the regional banks. Overall the ASX had a great week with all 11 sectors finishing higher, the index put on +142pts/+1.98% and is sitting around 5-week highs.
