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The market traded in a reasonably tight range for much of the session and importantly held firmly above 7500. Four sectors managed gains of more than 1% with tech the big surprise as yields fell despite strong price index numbers earlier in the week. The commodity focussed sectors of materials and energy were also strong performers. Financials struggled but couldn’t hold back the broader index.
Since hitting a high of 7573 on the 5th of April, the ASX200 has drifted lower as it consolidates the gains achieved in the best March since 2009. The patience of the bulls is being tested however in MM’s view it remains just a matter of time before new highs are achieved for local stocks. Bond yields had a rest yesterday which relieved some pressure on sectors that cower at their ongoing advance while the resources & energy stocks continued to enjoy strength in their underlying commodity prices.
Most stocks rallied today pushing the index higher as we edge towards the four day Easter break. Materials & Energy did the heavy lifting more than offsetting weakness amongst the property stocks. While the traditional April rally has so far been elusive, March was up ~7% so understandable that stocks have consolidated that move, however, the index now looks well-positioned for an assault higher, we think.
We are amending our Flagship Growth & Active Income portfolios.
The ASX200 disappointingly reversed some early optimism yesterday to close down 0.42% however there was a lack of interest in the market shown through light volumes ahead of the Easter break. Despite this continued consolidation, MM’s view is unchanged into the end of April / early May:
A softer session for the ASX today with weakness fairly broad-based although far from aggressive in nature. It simply felt like a lack of interest and if the traffic is anything to go by many have already taken off for School holidays / Easter break. Inflation data in the US tonight which will be a key focus – March CPI expected to be 8.4% YoY up from 7.9% in Feb.
A tepid start to the trading week locally with a small 0.10% gain at the index level courtesy of strength amongst the financial stocks which have enjoyed the onset of higher interest rates, the hope that margin pressure will ease along with some large looming dividends is a hard 1-2 combo to pass up. All the talk this year has been about how hot the Energy & Materials stocks have been and rightly so, however, it’s the boring/defensive sector of Ulilities that has been the quiet achiever. In a little over 3 months, the sector that comprises the likes of APA Group (APA), Origin Energy (ORG) & AGL Energy (AGL) is up over 17%, dramatically outperforming last year’s ‘go-to’ tech sector by more than 35%. As we often say at Market Matters, keep an open mind and 2022 is so far delivering on that call.
The market opened higher this morning however petered out into the afternoon as the resource stocks gave back early gains, particularly in Iron Ore & Lithium. The IT names again dominated the naughty corner as Australian 10 year bond yields topped 3% for the first time since July 2015, however the move was far from aggressive. As discussed in Marco Monday (click here) this morning, we think the respective elastic bands are being tested at their extremes, some reversion is now our preferred scenario.
Last week saw the ASX200 consolidate its recent rally just below all-time highs despite the growing chorus for the RBA to act sooner rather than later and commence the inevitable interest rate tightening cycle, joining the US & Canada who raised by 0.25% in March and New Zealand who have now pushed through three rate increases taking the official cash rate to 1%. When the RBA cut rates way back in November of 2020 to the emergency setting of just 0.10% they based their decision on economic forecasts. By the end of 2022 they thought unemployment would be 6% and inflation would be 1.5%, as it stands now we have unemployment at 4% and inflation at 3.5%, a long way from these economic assumptions.
The second weak of April saw consolidation at the index level with the ASX closing the week 0.20% lower, a positive outcome really given the continued headwind from rising rates into a market that is just 2% below all time highs.
However, when we stand back and look at earnings, the most important driver of stocks over time, the profile of the ASX has been picking up thanks in part to higher commodity prices and in particular, plenty of upgrades in the Lithium space. While some question the strength of the market, earnings are also at a high and it’s not just driven by commodity prices, if we strip those out, the rest of the market is actually seeing an increase. The P/E of the market has moved from 20x at the end of 2020, back to 15.8x now which is only slightly above historical averages, and certainly not scary.
