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The ASX saw the best of it early on today, buoyed by overseas strength on Friday while a ~7% rally in the oil price this morning following OPEC+ production cuts had the Energy sector flying, however, higher Oil prices are inflationary which is a net negative for the trajectory of interest rates, once that sunk in, equities pulled back from early highs.
The inverse correlation between the ASX200 Tech Sector and 3-year Bond Yield is very clear i.e. when bond yields fall tech stocks rally and vice versa. The local tech stocks looked poised to follow their US peers to fresh 2023 highs although a few local names struggled in 2023 e.g. BrainChip Holdings (BRN) -36%, Megaport (MP1) -35%, and to a lesser extent Life360 (36) +1.7%.
The ASX200 has closed up ~2% for the quarter even as we saw the RBA hike interest rates twice and the global banking sector teetering on the edge of a full-blown crisis. Equities continue to defy the numerous bears although it’s been far from one-way traffic so far in 2023 with the Energy & Financial Sectors falling while the interest rate sensitive names soared le by the Consumer Discretionary Index which soared +9.9%. An eclectic bunch of stocks caught our attention in both the winner’s and losers’ enclosure with M&A and reporting season exerting a huge influence on many stocks over the 3 months:
A solid day to end the week, month & quarter with the ASX putting in strong back-to-back sessions, the market up +3.2% this week alone led by a strong bounce back in Material stocks. For the quarter, the market was up +4.01% inclusive of dividends with the Consumer Discretionary sector up an impressive 12% – this goes to show that market performance doesn’t correlate with mainstream media headlines, so much for the doom & gloom in retail!
We remain bullish on the Materials sector hence we’re always looking for the best opportunities to exploit gains across these value stocks. Today we have reviewed 2 of the best-performing stocks so far this year and one laggard as we consider the next likely tweaks in our portfolio construction, especially if we see further strength in growth names that is likely to see MM to profit from some overweight positions.
Equities caught a bid today as investors showed a more rational mindset with fears on the back of SVB eased. The local market followed the lead of the US to add ~1% today and around 75% of the ASX200 index closed higher on the session. Banks bounced back from yesterday’s selling helping the index finish more than 1% higher. Tech was the biggest gainer today while Real Estate was the only sector to finish lower.
The market-friendly inflation print reversed earlier stock market losses to take the local index up +0.25% led by ongoing strength in the Resources Sector while selling in the banks courtesy of UBS’s downgrade was enough to restrain gains on a day when surprisingly there were more losers than winners. The growth stocks in Australia continue to underperform their US peers and even with the increasing likelihood of no further rate hikes the healthcare and IT stocks delivered mixed performance on Wednesday – we still see 6-8% upside from the US NASDAQ hence we are sticking with our overweight call on the sector locally.
The market opened on the back foot today down ~20pts at the worst before CPI (inflation) data was released at 11.30am, coming in 6.8% versus 7.2% expected and down from 7.4% last month. Clearly, inflation is cooling and while it is still way too high, it’s heading in the right direction, while today’s result should cement the RBA’s decision to pause in April, the market is actually pricing in no more rate hikes from here.
Central banks are maintaining a degree of calm in financial markets which is demonstrated by the VIX trading back under the psychological 20 level. Interestingly while we have seen a washout of the bulls, we haven’t really seen a major spike in bearishness or signs of real panic which can be taken both ways when we consider what’s been happening in the banking system.
The local market had its best day in two months thanks to buying support across both banks and resources. Financials got a boost following news First Bank would buy SVB, creating a bit of stability in the space. A fuse was also lit under resources thanks to strength in oil overnight while a bid for a junior lithium miner created frenzied buying in the beaten-up space. It wasn’t all good news though as Healthcare & Tech underperformed on the back of weakness from sector heavyweights.
