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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.
On Wednesday, we switched our tech-facing Altium (ALU) position to Ramsay Healthcare (RHC) with the Healthcare operator having sat on our Hitlist over recent weeks. The move reduced our direct/indirect tech exposure back to 13%, still significantly above the market weighting which is less than 4%. We had adopted a bullish and overweight tech position since Q4 of 2023 and this was the first step of MM migrating our Flagship Growth Portfolio to a more in-line market stance now.
The market finally cooled today with a stronger-than-expected March employment report the catalyst which increases the chances of the RBA going one more time, although our expectation is they’ll sit tight at 3.60% come the May meeting.
MM is taking profit on NXT
Healthcare stocks are in the same growth basket as tech without steroid-like volatility. Over the last 5 years apart from COVID rising bond yields has been the bane of the sector leading to sharp corrections in both 2018 and late 2021. However, we believe central banks are close to a rate pivot which should be supportive of healthcare stocks e.g. as we showed earlier the US 2-year yield has pulled back from over 5% to sub 4% in recent weeks theoretically creating a tailwind for healthcare stocks as a whole.
Another solid session for the market today with Tech & Resources doing the heavy lifting, the ASX200 is now up ~450pts/6.5% from the 20th March low hitting a 5-week high, however, we get a major test tonight with US CPI Inflation data to be released, consensus expectations are for 5.1% YoY which would be the 9th consecutive monthly decline from a 9.1% peak in June 2021.
MM is selling ALU & buying RHC
