Archives: Reports
A solid session to end a tough week for stocks, though as we near the end of the July the ASX remains higher for the month, up nearly 2%, with a bullish start tapering off as large cap technology stocks experience recent momentum unwinding as the expectations around interest rates permeate through markets. US rates are about to come down, which has underpinned a reversal of recent themes with more economically exposed sectors and smaller companies starting to outperform the narrow cohort of technology stocks that have underpinned the markets performance over the past year. Trends are clearly changing, which creates some short term instability, however ultimately, this is positive for the broader health of the market, the ASX today breaking back up through 7900 as we work on creating a new trading range into August.
We are making several changes to the Emerging Companies Portfolio today, repositioning towards stocks we believe offer a better mix of quality and leverage to the themes we remain confident in.
MM has been adopting a more defensive stance over recent weeks, but it’s never enough when the index registers a triple-digit decline. However, as the ASX200 threatens to break cleanly below 7900, the psychological 8000 area is rapidly becoming a distant memory, although while it doesn’t feel like it, the ASX200 is still up +1.2% in July. While we are not index punters at MM, it is important to recognise the risks as/when they arise; as stocks enter the seasonally weak August and September, a pullback towards 7500 should not be discounted, i.e. another 4-5% lower. Hence, at this stage, we remain open minded about what comes next, in no hurry to migrate back up the “risk curve”, although we’re not as far down it as we’d like to be with our tilt towards commodities.
A tough day at the office with the ASX getting hit hard right across the board, with corporate updates mostly on the softer side. All 11 sectors finished lower with 82% of the main board in the red implying there were very few places to hide, with the market closing smack on its lows.
This week’s reports from Telsa & Alphabet are investors’ first look at Mega-cap Tech companies’ performance during the second quarter. Reports from these names are particularly interesting to Wall Street as this small cohort is responsible for most of this year’s gains. The overnight selloff doesn’t surprise MM as it was triggered by the perfect storm of an overbought market, high expectations for earnings and a seasonally weak period for equities. The local market is set to test 7900 support again today, but with the “glass half empty” attitude adopted by US stocks overnight, it feels 50-50 whether it will hold.
While the market ultimately ended down a touch, there was some interesting price action intra-day in certain sectors, with the retailers well bid early on only to give up gains, Gold stocks rallied defying a recent pullback in bullion, while many of the miners recovered nicely from early weakness i.e. some signs playing out that recent trends may be approaching an inflexion point.
Kamala Harris looks almost sure to be the Democratic candidate to take on Trump on November 5th. She will be a more challenging adversary than Biden, but the betting odds still say she has a mountain to climb over the coming months. We will look at what the “Trump Trade” means for some ASX names later this week, but one sector that continues to dive lower with Trump set to reverse the Biden administration’s new climate policies is the EV-related names. However, with Harris having a more than 40% chance to win in November, we thought the sector might see at least some short-covering, but it’s not been evident so far this week.
European markets bounced strongly overnight, with the EURO STOXX 50 closing up +1.45% as dip buyers waded back into US futures. US stocks rebounded following their worst week since April as investors embraced a stronger Democratic candidate. This enabled them to focus on the looming major earnings reports, with Tesla and Alphabet facing the music on Tuesday. The political news is unlikely to materially impact the market unless Harris can dent Trump’s apparent significant lead, something Biden was unlikely ever to do. By the close, the S&P500 had risen the most since June, with the “Magnificent Seven” up around 2.5% while the small-cap Russell 2000 added +1.7%. Crowdstrike (CRWD US) fell another 13% as the magnitude of the weekend blackout hit home and, of course, the prospect of litigation on the horizon.
The ASX 200 came back and re-tested the prior breakout area today at 7900 (low of 7902), which in theory should provide a decent level of support given it took over 4-months and 4 failed attempts to leap over the milestone, which finally came on the 11th July. While only early days, we may well be seeing the formation of a new trading range, and the risk/reward stacks up to be a buyer ~7900, using 7850 as a point to raise the white flag, given a move through that level suggests the recent run towards 8100 was a false break. All very micro and index-orientated, but important nonetheless to determine whether the general market is in a risk-on or risk-off position. For now, support held, and we saw buying come in by the close.
