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For a second consecutive day, the ASX200 recovered strongly from early morning losses and although the markets still well down for both the week and month it’s finally attracting some bargain hunters into weakness. Ultimately we only saw the market rally +0.2% on Wednesday but it was a solid performance considering National Australia Bank (NAB) and ResMed (RMD) traded ex-dividend plus the overall Banking Sector drifted lower, on the positive side of the ledger the healthcare / real estate stocks finally enjoyed a bounce. Volatility remains the constant so far in 2022 as the index continues to rotate between 6700 and 7650, it’s now 13-months and counting.
The market was in a holding pattern today ahead of important April inflation data in the US tonight – that number will likely drive the next leg up or down in bonds which will have a big bearing on equities. Looking at the volatility in the US market overnight (the Dow trading in an +/- 850 point range), it’s fair to say that there is a lot of indecision – traders are jumping at shadows while there is clearly some pain being felt around the place forcing a de-risking of portfolios, another 50 point…
We are making some changes across four of the Portfolios.
Flagship Growth: Cutting VUK & adding to MQG & TPG
Income: Cutting IGL & buying a Government Bond
Emerging Companies: Cutting WSP & buying LYC
International EquitiesL Cutting AMZN US & buying TSCO LN
The ASX200 fell another 1% yesterday although we finally saw some bargain hunters enter the market mid-morning after a ~$1.75bn dollar stop appeared to be triggered in the SPI Futures as we finally saw some signs of panic capitulation style selling – traders usually look for such moves before calling a market bottom. The recovery was reasonably broad-based as we went from only 2% of the ASX200 being up on the day to 33% come the close with a number of high beta growth stocks catching a distinct recovery style bid tone e.g. REA Group (REA) +5.5% and Xero (XRO) +4.2%.
An interesting session for the ASX with the futures indicating an open down ~100 points, however, that was short-lived with some large volume through the SPI knocking the market down by nearly twice that come 10.30 am, before a sustained recovery played out for the rest of the day. At its worst, the ASX200 was down ~180 points before bargain hunters emerged and the market finished ~110 points up from the morning nadir – a strong turnaround led by a recovery in technology with a large cross-section of stocks rallying more than 6-7% from their morning sell-off.
The ASX200 took another tumble on Monday taking Mays decline to well over 4% in just over a week, the selling was again broad based with well over 80% of the main board closing in the red – the “buy the dip” mantra has vanished almost as fast as investors’ appetite for bonds. We are not seeing any fresh trends emerge it’s just a simple continuation of the last 6-months with any stocks trading on high valuations or potentially optimistic future earnings being dumped as investors move increasingly towards defensive names and cash, just a few simple examples from yesterday’s trading sums up the current market sentiment:
Broad-based selling continued for a second session as investors feared higher for longer inflation and a slowing global economy. Shares in resources companies were sold off on poor China export data which saw growth at a 2 year low on the back of lockdowns in a number of cities. Energy was one of the few exceptions with further sanctions on Russia’s exports tightening the market. Traditional low growth sectors of consumer staples and healthcare also managed to finish higher on a soft day while Real estate shares took the most heat as bond yields continued to rise.
The news & rhetoric coming out of China reminded me and a I’m sure a few others of George Orwell’s famous last novel – 1984! The communist party has kept 25 million people locked down in Shanghai for around 6-weeks as it continues to strive to meet its Covid-zero strategy, they’ve turned the streets into ghost towns and are almost jailing positive cases in “quarantine centres”, I can’t imagine being confined in an average sized apartment in the countries most populated city for that length of time. The rest of the world is living with the virus while President Xi Jinping’s basically doubling down on his probably unrealistic ambitions:
The ASX200 endured an abysmal Friday which finally saw the index close down -2.2%, the session saw only 6% of the main board manage to close in positive territory, conversely the same number of stocks fell by over -7%! There was nowhere to hide from the relentless selling with companies who reported being treated very harshly, even when the numbers like Macquarie’s (MQG) looked ok. To put the end of the weeks drop into perspective it was the local markets largest one day decline since Russia invaded the Ukraine back in February.
The local market copped its biggest hit since February today, falling to a 6-week low after the US market tumbled overnight. Yields were higher again, on the back of the BOE raising rates and also talking to the chance of inflation hitting 10%+ in the final quarter of the year. Tech was the hardest hit, real estate a near second place on the back of the rally in yields. Despite the savage selling, consumer staples held up well to only finish marginally lower.
