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A positive session to kick off the last month of FY24, with broad-based support across the market, led by Real-Estate & Financials. So far in FY24, the ASX (inclusive of dividends) is up 13%, coming off the back of a 17% gain in FY23, so we’re still in a good patch despite all the negative rhetoric that consistently permeates around markets. While the timing of rate cuts is still up in the air, earnings by in large are holding up nicely and there have been plenty of opportunities to make money from equities over the past few years, which is what we’re all about at Market Matters!
Uranium, the fuel used for nuclear fission, has sprung to the forefront of investor conversation over recent years, sparked by a mammoth 300% appreciation, which began back in 2021. As would be expected, the related stocks have surged accordingly. Interestingly, so far in 2024, when uranium (chemical symbol U) has corrected over 10%, most of the related stocks have kept going. For example, year-to-date Paladin (PDN) is +62%, and Boss Energy (BOE), the “poorer” cousin, is +16%, pretty good returns when the ASX200 is up less than 2%.
The ASX200 rallied sharply into the close on Friday, reducing the weekly decline to 0.3%; it certainly felt far worse on Thursday morning – a classic case of “End of the Month” window dressing. At its worst on Thursday, the local market had pulled back 300 points or 3.8%, but come the close on Friday, it was smack in the middle of its last 4 months’ trading range, hence our current market neutral stance.
A last-ditch rally for the market heading into the weekend helped save the month of May. The local market started well before sellers tried to dampen the mood today. The mood picked up late in the day though with a surge into the close which helped bank a +0.5% gain for the month, the ASX200 up +37pts for May.
The Consumer Staples Sector has been very weak on the ASX, significantly underperforming the US equivalent. Unfortunately, there are many “like for like” examples of local stocks delivering dismal returns compared to their US peers. There are a number of obvious reasons behind the recent pullback in the local sector, including wage pressure and a Senate inquiry into supermarket competition and prices. The final report is due to be provided no later than 28 February 2025, i.e. plenty of uncertainty through 2024. We love an inquiry in Australia; we cannot imagine Trump et al. starting many in the US, which by definition helps corporate America.
The ASX was sold off again today as concerns around persistent inflation pushed bond yields higher, making stocks relatively less attractive. While bond yields are an influence, markets are a jigsaw so we shouldn’t get too focussed on one particular piece, even though it is an influential one.
We are selling a stock for a loss, recycling capital into a new position.
Bonds have been driving stocks in 2024, and markets continue to look for rate cuts moving forward. The futures market has pushed back the timing of these well into 2025, while the risks of another hike this year have even crept back into the current pricing. However, a quick glance at the RBA Cash rate since the new millennium shows that after periods of major interest rate adjustment, we often see prolonged periods of no change, i.e. many, many months with a cash rate of 4.35% would not surprise. If today’s AFR story is on point and we won’t see rate cuts until next Christmas, the valuation of some areas of the ASX200 does feel rich.
Stocks were under pressure from the outset today, and a hotter-than-expected monthly inflation read didn’t help, with the ASX taking another leg lower after the data dropped at 11.30am. As has been customary in recent sessions, selling ticked up into the close with stocks ending near the session low, a sign of a tired market.
The questions ran hot yesterday around Boss Energy (BOE), even after we touched on the leading ASX uranium stocks on Tuesday following the news that the company CEO had sold over 70% of his shares in the uranium miner. Also, for good measure, the Chairman and another director also sold smaller parcels of stock. We can see the logic in taking some $$ off the table after the stock/sector’s great run in recent years, but all things being equal, they clearly don’t believe it’s going to double again anytime soon.
