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The ASX200 managed to mildly higher last week, but it certainly felt worse after Friday’s sharp drop, and there is more to come on Monday. While the press rotates its coverage between the largest IT outage in history and if/when Joe Biden will exit the November presidential race, the stock market had its own pronounced rotation underway. As financial markets priced in a Fed interest rate pivot come September, investors decided it was time to rejig portfolios in earnest – something MM has been discussing for a few weeks. On the ASX, we saw the rate of the sensitive/defensive sectors advance, led by real estate, at +1.7%, while the Materials and Tech Sectors dropped 2.2% and 1.8%, respectively. The moves were more pronounced on the stock level
A soft session played out on Friday, with the ASX down 64pts/0.81% at 7971, though we did see a decent recovery from the lows (up around 45pts),perhaps a result of a major IT issue caused by global Cyber Security firm CrowdStrike that impacted many of us, including the ASX. Short CrowdStrike, long Microsoft might be the play tonight!
The Dow Jones tumbled over 500 points on Thursday night, although it’s the only major US index on track to finish the week higher. As we enter the gauntlet of the seasonally weakest two months, there’s room for further downside in the coming weeks, with markets trading at lofty valuations around all-time highs. With stocks already factoring in three rate cuts into January, there is room for disappointment. Ironically, Nvidia (NVDA US) and Meta Platforms (META US) bounced overnight after their recent sharp falls leaving the sellers to focus on the broad market.
Tech was knocked overnight and the trend continued locally today with the rotation out of the hotter stocks, into some of the more ‘boring’ sectors, while property took a breather amidst continued strength in employment which prompted interest rate traders to increase the odds for a hike.
Overnight saw mixed sessions in Europe and across US indices; the UK FTSE edged up +0.3% while the EURO STOXX 50 fell 1.1% as investors anticipate a period of growth-friendly policies and political stability in the U.K. under the newly elected Labour government. Conversely, France continues to deliver uncertainty. In the US, the rotation out of high-flying mega-cap tech stocks into the more rate-sensitive names continued, with the Dow rallying +0.6% while the NASDAQ closed down -2.9%. The Russell 2000 (small cap) index slipped 0.7%, ending its five-day winning streak, which had delivered an advance close to 12% as the market rally broadened out on rate cut expectations.
The ASX200 pushed towards 8100 today, extending July’s gains to 3.8% – so far, trumping July’s average advance of the last decade by 0.8%. While it was a strong session, some selling became obvious late in the day and it wouldn’t surprise MM to see some consolidation play out from here, after a fantastic run.
We are making several changes across portfolios
US equities continue to punch higher with a large degree of “catch-up” unfolding across the board, e.g. while the small caps surged +3.5%, the high-flying Nvidia (NVDA US), Microsoft (MSFT US) and Alphabet (GOOGL US) all declined as investors appeared to go in search of value. The Dow rallied 740 points, delivering its best day in more than a year and posting new all-time highs in the process. Reporting season has kicked off positively, while Industrial bellwether Caterpillar (CAT US) up over 4% overnight, trumped by United Health (UNH US), with the insurer surging +6.5% after delivering better-than-expected second-quarter results. The Financials advanced again after earnings from Bank of America (BAC US) and Morgan Stanley beat analyst expectations, with BAC jumping more than 5%.
A day of consolidation for the ASX with the market getting used to the ‘8 handle’, as recent trends extended i.e. Property up ~1% and resources down ~1% with the hangover of weaker Chinese growth lingering over the sector.
