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The ASX pulled back today weighed by weakness amongst the resources while the property stocks factored in higher interest rates, and fell. The RBA the main game this afternoon, increasing rates for the first time in nearly 12 years upping the cash rate by 25bps to 0.35%, the market fell because the increase was a tad more than expected (15bps) however it should come as no surprise to investors, 2 year Aussie bond yields are at 2.75% while the 10 year is at 3.4%.
MM are amending our Flagship Growth & Active Income Portfolios
The ASX200 kicked off the infamous May on the back foot slipping -1.2%, overall not a bad performance considering the S&P500 fell over -3.6% on Friday night taking it down over -9% for April, we closed the month basically unchanged. All 11 market sectors declined yesterday and I feel like a broken record stating that the weakness was again focused in the IT Sector as it plunged another 4%, all 14 stocks fell as earnings / valuation jitters took their lead from the US reporting season e.g. Amazon.com (AMZN US) was down -14% on Friday. We’ve been looking for a countertrend bounce from this embattled sector but as we said yesterday “it’s now too early to pre-empt…
The ASX fell today, around 1% to kick off the new week and new month following a bigger fall on Wall Street Friday thanks to weakness in technology/growth. The RBA is set to increase rates tomorrow, the only real argument being by how much, whether they’ll do 15bps or go by 40bps, the former being the consensus view, while tech stocks continued to drag.
Macro Monday: It’s May, the RBA is set to hike tomorrow & we’re already set to open down 100-points!
Over recent decades investors in Australian shares have regularly experienced a negative return through May & June, hence the phrase quoted at nauseam “sell in May and go away”. This morning is certainly poised to rattle investors after Fridays -3.6% plunge by the US S&P500 following further disappointing earnings reports. At MM we had been looking for a spike to new highs through March / April to migrate down the risk curve while at the same time increasing cash levels, so far we’ve only increased our exposure to the defensive end of town as opposed to executing some outright selling as the index failed to reach our upside target levels.
The ASX200 fought valiantly on Thursday / Friday to end the week down less than 1% with Fridays strong 78-point recovery taking the index back well above 7400, the market actually popped 10-points in the match to close on its high for the day and yet again find ourselves within striking distance of a fresh all-time high. The index has now spent 13-months rotating between 6750 and 7625, perhaps the infamous May will see a move to a fresh equilibrium although history would favour the bears.
The ASX200 closed out the week on the front foot rallying over 2% on Thursday + Friday taking the index back within 2% of its all-time high. The week saw further volatility focused around China as lockdowns across Beijing and Shanghai reverberated across financial markets i.e. it’s hard to imagine global growth without Chinas participation e.g. BHP Group (BHP) has traded in a whopping $8.60 / 16% range in just a few days as we saw investors try and second guess what comes next.
The ASX200 bounced almost +1.3% overnight as the mining stocks enjoyed a strong rebound which helped the Materials Sector rally over +3.5%. The local market yet again finds itself only 3% below its all-time high although most subscribers would agree it doesn’t feel that strong but we cannot argue with the numbers, at MM we still believe “the path of most pain” for underweight investors is a pop to new highs but after trading sideways for more than 12-months it feels a rash call to say it will happen in coming weeks, especially as the banks are starting to feel tired into May.
The bulls re-emerged today with a focus on the resource stocks pushing the Material sector up by 3.5% in aggregate with strong gains across Iron Ore, Copper, Coal, Nickel & Mineral Sands – pretty much right across the board (bar Uranium, Gold & Lithium). US Futures moved higher throughout our session and that prompted a nice bottom left top right sort of day for the market with the ASX200 back up above 7300.
A week is proving to be a very long time in today’s market, last week the ASX200 tested its all-time high for a second time in 2022 and then yesterday morning we found ourselves 5% lower. The pullback has largely been driven by a plunge in the previously “hot” Resources Sector as China threatens to choke the global economy with further COVID lockdowns, over just 6 trading sessions heavyweight BHP Group has fallen 16%. While MM believes the sector is likely to attract some buying after its savage rerating we remain conscious that investors were positioned the most overweight ever towards the commodity sector which by definition poses some clear washout risks – time will tell if we’ve just witnessed enough of a sell-off to rebalance the markets positioning towards the sector however it seems a strong possibility.
