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The ASX200 fell another -0.7% on Thursday dragged lower by broad-based selling and specific weakness across the influential banks and large-cap miners. A combination of the RBA hiking rates at the same time as growth data has started to soften has weighed on already nervous growth names while the China reopening play has started to lose momentum after pushing our Resources Sector significantly higher over recent weeks.
Another soft session for stocks today as the market latches on to the growth concerns permeating through the bond market – we talked about the front end of the yield curve inverting this morning – read here – and what it means for different stocks/sectors, however at a high level, it seems the often transient market is now latching onto softer economic data (GDP for example) and rhetoric implying that unemployment will be on the rise next year, in short, aggressive interest rate hikes are working and the economy is cooling, let’s hope they haven’t turned the screws too hard too fast.
We are making changes across three portfolios:
Flagship Growth: Trimming BHP & SFR
Active Income: Trimming BHP, selling AGL & APA
Emerging Companies: Trimming SFR & selling ASB
The ASX200 experienced a tough Wednesday finally closing down -0.85% after a huge sell order hit the SPI futures market after 4 pm, ultimately it doubled the day’s losses in just 10-minutes i.e. before the aggressive MOC Order (market on close) the index had clawed back from being down 70-points to being just 32-points in the red. The market was feeling reasonably constructive into 4 pm but alas big MOC sell orders are often a sign equities have lost their mojo, at least for a while, remember in Wednesday’s Portfolio Report after the RBA’s 8th consecutive….
A risk-off session today particularly on the close with some big sell-orders hitting the tape knocking the ASX 200 ~30 points in the match, tearing up what was a solid fightback from midday lows – the intra-day chart below highlighting the move well. It seems the ‘worm might have turned’ in relation to short-term sentiment, big market on close (MOC) orders are indicative of that so we’re now taking a more cautious stance, looking to reduce some market exposure after a solid run by local stocks.
The phrase “what a difference a day/week etc” makes is often used liberally but 2022 certainly qualifies when it comes to interest rates, yesterday saw the RBA hike the Official Cash Rate for a record 8 consecutive times taking us from an all-time low of 0.1% to a 10 year high above 3%. Australia has seen 2 major extremes in the blink of an eye, it feels like only yesterday when Philip Lowe said that interest rates would stay low until 2024 – he actually started the rhetoric in 2020 and continued it through much of 2021.
The ASX fell for a 2nd straight session today as the RBA increased the cash rate by a further 0.25% to 3.1%. The market had priced in 16bps of tightening hence bonds yields rose, so did the $A while equities fell after showing resilience in morning trade.
The ASX200 rallied another +0.3% on Monday courtesy of China’s reopening shift which propelled resource stocks higher on hopes that the global economy can avoid a deep contraction in 2023, unfortunately, the move caused the market to polarise as bond yields rallied in line with the optimism towards the growth outlook. The move in bonds resulted in over half of the market closing lower but when the heavyweight resources advance strongly the market often ignores the crowd:
The ASX kicked off the week on the front foot today with Energy & Material stocks pushing the market higher in what was a fairly subdued session. It’s certainly starting to feel more like Christmas as volumes from here start to slide, and moves become more exaggerated, an example today was Elders (ELD) on the downside after UBS cut its recommendation.
Most people think 2022 has been an awful year for equities but performance has actually been very stock/sector-specific, it hasn’t been an annulus horribilis for broad market investors. The ASX200 will commence its run towards Christmas this morning down less than 2% with dividends for the average portfolio more than making up for the slight fall. Last week we saw dovish comments from Fed Chair Jerome Powell weigh on bond yields and the $US which in turn ignited the interest rate-sensitive pockets of the stock market which could easily see the ASX close up for the year:
