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The market remained in a holding pattern today waiting on Wednesday’s inflation print to get a better read on which direction to jump – although it has crept up to 6-week highs. Energy the standout with Coal stocks, in particular, roaring higher however we saw decent buying right across the sector, offsetting weakness that crept into retailers thanks to a downgrade from Walmart (WMT US) after-market in the US.
The ASX200 had a very quiet start to the week on the index level as local stocks largely ignored Friday’s weakness on Wall Street, most of the action on the ASX unfolded on the stock level as the quarterly updates gathered momentum. Overall the broad market largely struggled on Monday with less than 40% of stocks advancing but a rally by the influential large cap miners was enough to offset softness elsewhere. Aside from confession season this week looks set to be all about inflation & interest rates, yet again!
We edged tentatively into the new week with the ASX finishing 1pt lower as strength in Materials & Utilities was offset by weakness in Tech & Telcos – the market chopping around in a tight ~25pt range. Domestic inflation data is out on Wednesday which will likely be a big driver of stocks ahead of the US Federal Reserve decision on rates that evening. Consensus is for Aussie inflation to print 6.3% YoY while the US Central Bank is expected to hike rates by another 0.75%.
Both US and local stocks are bouncing on cue helped by a market that found itself positioned with a record bearish bias resulting in a dearth of fresh sellers without supporting bad news but as the chart below illustrates this is slowly moving back to more sustainable levels as global indices grind higher. In our opinion sentiment still remains a touch too bearish across major indicators and as we’ve discussed over the last few months it’s this very same ingrained negative outlook towards risks assets that’s been the catalyst to allow equities to recover from their mid-June lows even if most investors continue to worry around the economic risks of soaring inflation/rate rises and a looming recession.
The ASX200 enjoyed a strong week which saw the index rally +2.8% making fresh 5-week highs in the process, the Tech and Financials led the charge while only the defensive facing Healthcare and Consumer Staples Sector slipped slightly lower i.e. “risk on” has kicked back into vogue with a vengeance. However as we alluded to on Friday MM still labels the current advance as a likely “short squeeze” as opposed to fund managers calling a meaningful market bottom…
A flat day on the surface but there were plenty of moving parts underneath seemingly with little rhyme or reason to much of the daily swings. The banks were strong, offsetting weakness in telcos and energy. Tech was also though it was hardly a broad-based rally within the sector. There seemed be a short squeeze focus today with the beaten down names rallying without news.
The ASX200 enjoyed a noticeably strong match-out yesterday in what had been a fairly lacklustre session, the market finally closed up +0.5% showing a current lack of appetite to go home short, it’s feeling like a classic “bear squeeze” i.e. just what MM has been looking for since mid-June. To back up our opinion the recent stock/sector rotation back into the underperformers of 2022 reaffirms our view that we’re seeing capitulation by bearish traders as opposed to a meaningful change in trend i.e. a quick glance at yesterday’s 5 best performers and their performance through 2022 paints a very clear “short squeeze” picture:
While the ASX was only up ~0.5%, the session had a more bullish vibe to it with some big moves at the stock level as news flow heats up ahead of full-year results. The tech sector shone bright, and so too did the telco’s while the energy stocks struggled on weaker oil prices overnight and some confusion around Woodside’s guidance at their quarterly today.
The ASX200 surged higher on Wednesday following a strong lead from Wall Street as traders appeared to bet that we’ve seen a meaningful bottom by equities i.e. the S&P500 has corrected -25% and the ASX200 -16%. There were a couple of catalysts for the strong rally by the broad market including good old fashion company earnings which are starting to paint a picture that businesses are coping far better with the macro headwinds than was previously feared i.e. investors are expecting boards to mention inflation, Covid and supply chain concerns leaving relatively little left to scare the market, at least for now:
Finally, the ASX popped on the upside just as the BofA’s latest survey of fund managers showed a ‘dire level of investor pessimism’ with the title of the report authored by their Chief (normally bearish) Strategist Michael Hartnett a very fitting way to describe the current mood of markets…’I’m so bearish, I’m bullish”. Money was desperate to get back into risk assets and equities caught a bid today as a result. The small cap index finished more than 2% better today while the ASX200 had its best session since the early days of the new financial year.
