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Last week almost felt like an ordeal for the ASX200 but it actually still managed to close up 1% courtesy of a rock solid Banking Sector which more than compensated for the aggressive sell-off in the Healthcare & IT stocks e.g. Commonwealth Bank (CBA) +6% and ANZ Bank (ANZ) +10%. I’m sure everybody now comprehends that bond yields are dictating financial markets at present with last night another classic example, US 10-year bond yields reversed lower after making fresh 2021 highs which sent stocks soaring higher
A lot occurred underneath the hood this week however overall, the ASX added ~0.5% to finish around the 6700 handle, after being both higher and lower over the 5 days. As we highlighted in today’s morning note, the best way to highlight what’s happened this week is by looking at the extremes in terms of stocks / sectors. ANZ was the best performer in the ASX 200 this week adding 10% versus IDP Education (IEL) which fell 13%. The market remains split in half between the sectors / stocks that like higher interest rates, and those that don’t. See table below.
Famed portfolio manager Hamish Douglass has moved Magellan’s portfolio to 50% defensive although like ourselves he remains basically fully committed to equities. He believes many investors are ignoring the risks of a bumpy post COVID economic recovery citing virus mutations as one of many risks that could derail the stimulus / free money led recovery.
Volatility has kicked up on the market with a big range playing out today, buying amongst the banks / financials offset by decent weakness in the healthcare sector. A lot of stocks traded ex-dividend today and that took about ~25pts from the market, so it looked worse than it actually was but still, there were clear pockets of decent selling, CSL for instance went Ex-Divi for ~$1.34 and fell $11.17. BHP and RIO were also trading Ex-dividend today which talked to the weakness in the Material sector today.
The choppy price action of the last month continued unabated yesterday with the ASX200 bouncing 55-points to close back above 6800, basically at the same price it started February. Over the last month of trading the local markets remained within 2% of this area, its felt like there’s been an imaginary elastic band snapping stocks back whenever they attempted to move either up, or down, to a new level of equilibrium.
The ASX looked very weak this time yesterday after dropping 100pts from the morning high, however the old mantra of buy weakness, sell strength has clearly remained in play. It feels like this saying (for MM at least) is becoming repetitious however that’s often the case in markets, things repeat themselves, until they don’t!
The ASX200 continues to dance the volatility jig after falling almost 100-points from its intraday high on Tuesday following comments out of China which appeared to spook the market, although I would note that selling of strength has been a common characteristic through 2021 to-date. The news flow between East and West central banks / regulators was almost diametrically opposed yesterday but with Chinas comments the most unexpected addition to the mix it had the most impact, probably a combination of surprise factor and global equities had been roaring higher over the last 24-hours:
In with a bang, out with a whimper today. Equities were well bid early with stimulus & QE back on the agenda in the US. From there though, the sellers had the upper hand – China’s banking regulator warned of asset bubbles and signalled it would look to reduce leverage in its system. That set off a chain of selling in the region seeing Asian markets slide from ~1% up to ~1% down. The local market faired a touch better than its regional peers, though still finishing the day ~1.5% below the intraday high.
In just a couple of back to back sessions the ASX200 has endorsed our call for elevated volatility in 2021 – on Friday we fell 161-poinrts before recovering 116-points yesterday, not ideal price action for the faint hearted investor! As we’ve maintained for months MM believes stocks have entered a period where they will take “3 steps forward and two back”, the style of choppy rotation which regularly punishes investors who follow natural human emotion and sell weakness & / or buy strength. With more than 80% of the local market closing in positive territory on Monday our roadmap for both March and 2021 remains on course:
A bullish session for the ASX to correspond with the roll out of the new MM website – hope it’s a good omen! Many of you have sent through positive comments, thank you, and a few have had some frustrating login issues which I apologies about. We will get there and we are confident that the MM experience will only grow from here as the depth of content expands over time. If you have further feedback, we’d love to hear it.
