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The market ended up today although again, it was a long way from the daily highs as traders sold the move above 6800 – seems a similar sort of story we’ve been writing about for the past 5 weeks. Today however, there was a change in the way the market is treating ‘growth’ with a capitulation style sell-off early met with buying and a clear rotation back into that part of the market. This is aligned with MM’s recent calls for some reversion to play out here i.e. buy growth in the short term – more on this below.
The ASX200 put in pretty disappointing performance yesterday only rallying +0.4% after receiving a plethora of apparent bullish news, almost 60% of the index managed to close up on the day but as we’ve seen so often this year sellers emerge into strength – the index has now been rotating round the psychological 6800 area for 5-weeks with both sellers and buyers fading any moves. Sentiment was tarnished by some aggressive selling in the BNPL space with both major players reversing early gains to close well in the red, ZIP (Z1P) was the worst falling -6.7% while Afterpay (APT) retreated -3.6%; the sectors currently reinforcing our view for 2021 that selling strength will add value in the months ahead.
Today’s session promised so much at the outset but delivered so little with the ASX 200 finishing ~100pts from the early morning highs. The bullish backdrop of what looked to be a short term top in bond yields, the passing of a US stimulus package + positive data from China over the weekend had stocks well bid on open with the market trading up to a 6835 high, only for sellers to kick into gear around lunchtime and push stocks back towards 6700. The performance gap continues to open for the market with the IT sector down -1.14% today while the Materials rallied +1.65% showing that the right sector calls are so important in this sort of market as the macro backdrop plays the tune for stocks.
After battling to close in positive territory last week the ASX200 is walking into a cavalcade of bullish news this morning, an open well in excess of 6800 feels on the cards as all the stars appear to be aligning for the bulls:
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!
