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Global stocks have experienced ever-increasing volatility through 2022 and while its easy to point the finger of blame directly at surging bond yields we believe the removal of liquidity is more specifically the issue although by definition they go hand in hand. What matters is where to from here so MM and our subscribers can add value (alpha) to our portfolios while both fear and opportunity increase by the week. The obvious place to start our search for answers is by reviewing the previous occasions when the Fed removed QE and its subsequent impact on stocks.
Last week saw the ASX200 whacked over 300-points or -4.2% as we edged under Mays low into the close on Friday, if we see a downside swing this month similar to those through April and May a test below 6800 feels inevitable over the coming few weeks – perhaps even on Monday! Unfortunately the markets feeling a little like a row of dominos at the moment, firstly we saw the undisputed bursting tech / growth bubble, this was followed by the battery names on June the 1st and then last week the influential banks joined the bear party, will the resources be next? As we said on Friday this was the worst week in 2-years and it certainly felt like it as the attention of the sellers was refocused to some previously strong names / sectors, a few that caught our attention:
The week ended on a sour note today with the ASX following the US market’s lead with inflation fears being the main driver. Banks found some support early in the day but ended near their lows as traders took risk off into a long weekend. Interest rate-sensitive sectors of Real Estate and the discretionary retailers took the brunt of the selling. The end result saw the market down -4.24%/-307 points for the week, the worst performance since April 2020.
The ASX200 was smacked for the 2nd day this week as UBS’s more cautious rhetoric towards the banks continued to drive the influential sector lower e.g. Commonwealth Bank (CBA) -2.6% and Westpac (WBC) -3.7%. I can feel the questions brewing up for the weekend report “is it time to buy the banks?”, firstly lets simply revert to the seasonal statistics as the financials dance to their common June tune:
A tough session for Aussie stocks with ~75% of the market trading lower while ~7% of the ASX 200 fell by more than 4%. The banks were again on the nose all finishing down, although there was a ‘buy the dip’ mentality that played out after a tough morning session, Commonwealth Bank (CBA) the most obvious beneficiary finishing ~$2 above their intra-day low however it wasn’t enough to support the broader market which finished on the low of the session.
The ASX200 put in an average performance yesterday after a promising start as it attempted to recoup some of Tuesday’s plunge following the RBAs aggressive rate hike, we finally closed up 25-points after the index surrendered over half of its early gains as the banks took one of their biggest hits in a long time e.g. Westpac (WBC) -6.1% and Commonwealth Bank (CBA) -4.4%. MM had highlighted earlier in the month that the banks usually struggle through June but even we were surprised by the severity of their decline – we cited this seasonal weakness looming on the horizon as a headwind for the ASX over the coming weeks…
While the market only rallied ~25pts today it felt a lot better outside of the banking sector with the big 4 down by an average of ~4.2%. Concern that sharper rate increases will have an impact on bad debts the reason with a note from UBS this morning the…
The ASX200 was thumped -1.5% yesterday after the RBA pressed hard on the jugular of the Australian economy, its 0.5% rate hike to 0.85% was the largest in over 20-years with more rate increases promised into 2023, the futures market is now pricing in a Cash Rate of 3.1% come December.
The market was hit today following a more aggressive hike from the RBA with benchmark interest rates up +0.50% to 0.85%, double the +0.25% hike that was expected. We think this is the right move given current inflation, however, the quantum of the hike is a direct result of the RBA’s prior inaction when rates were kept at emergency levels for way too long. They also signalled more to come but also said that inflation will miraculously fall back into their targeted 2-3% band next year. We certainly hope that’s the case, although it seems quite fanciful.
The ASX200 commenced the week on the back foot falling -0.45%, erasing the month of Junes small gain in the process, the selling was light but fairly broad-based with less than 20% of the main board managing to rally on Monday. With both the US & UK after-market Futures rallying strongly throughout the day AEST it felt like the local market was being held hostage by the RBA’s interest rate decision at 2.30 pm today – there are mixed opinions as to how far Philip Lowe will go with the interest rate markets pricing in a 0.28% rate hike and for the cash rate to reach 2.9% by the end of 2022. Markets hate uncertainty hence if overseas markets remain well supported…
