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.
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.
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%.
Monday saw all 11 sectors close higher, with the “Big Four” banks, BHP Group (BHP) and CSL Ltd (CSL), all adding to the day's +0.7% advance. However, less than 70% of the main board closed higher, with buying solid rather than euphoric. The only pocket of the Materials index that struggled after the assassination attempt on Former-President Trump was the lithium/ESG names, with the Republican candidate surging ahead of Biden at the Bookies, e.g. Liontown Resources (LTR) -3%, Pilbara (PLS) -1.3% and IGO Ltd (IGO) -1.2%. A Trump victory is good news for oil & gas as opposed to EVs, etc., as he intends to reverse Biden's climate policies.
The 2nd week of July enjoyed a dovish testimony from Jerome Powell and a lower-than-expected US CPI print (inflation), both bullish for equities, but some sectors more than others. We are now looking for bond yields and interest rates to turn lower over the coming year, which should drive some reversion on the stock/sector front. At MM, we constantly evaluate our performance from a service (survey coming this week) and portfolio performance perspective, and the standout factor of the latter is that our outperformance has come from sector and stock tilts i.e. focussing on being in the right sectors & stocks at the right time, rather than picking market direction
Will it be 3rd time lucky for the local market to attempt to break out to fresh all-time highs? We believe the answer is yes, but it certainly feels like it’s now or never, as global equity markets position themselves for lower interest rates without pricing in any meaningful risk of a recession. As for politics, equities are saying who cares if France has an unworkable government and the US is on course for a second term of a Trump Presidency. Investors are focusing on the prospect of declining interest rates while ignoring rising valuations and macro uncertainties percolating beneath the surface. This will change at some time, but for now, it’s a dangerous game fighting the bullish tape, particularly if US earnings season delivers.
The ASX200 closed down 0.2% on Wednesday but felt like a positive day to MM, with the index rallying from its early morning low to close near its intra-day high – if it weren’t for ongoing weakness by the large-cap iron ore names, it would have been a bullish reversal, e.g. BHP -1.3% and RIO -1%. The market's internals were okay, with only 52% of the ASX200 closing lower on the day, while the index itself remained above 7800, within 1.2% of its all-time high. As we’ve said a few times of late, all things being equal, the path of least resistance for the index is up, but the resources need to hold at least steady for the ASX200 to test 8000. The underperformance of the influential iron ore names, considering we’re close to all-time highs, is eye-catching:
Fed Chair Jerome Powell delivered a dovish testimony overnight, warning of the dangers of keeping interest rates too high for too long: “Reducing policy restraint too late or too little could unduly weaken economic activity and employment” and “More good data would strengthen our confidence that inflation is moving sustainably toward 2 per cent.” With the US June CPI set for release on Thursday and PPI on Friday, the groundwork has been laid for rate cuts into Christmas.
The ASX200 started the week in poor fashion, following S&P500 futures lower throughout the day in anticipation of a weak opening by Europe following the surprise French election result. Last week, markets were concerned about Le Pen, but as the results rolled in on Sunday, concerns migrated towards potential reckless spending by the victorious Left, i.e. the market interpretation being that it’s good news the Far Right lost but bad news the Far Left won. Ultimately though, moves across financial markets have been relatively muted on the view that political gridlock may at least limit the ability of the Left to enact its big-spending plans.
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.
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.
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%.
Monday saw all 11 sectors close higher, with the “Big Four” banks, BHP Group (BHP) and CSL Ltd (CSL), all adding to the day's +0.7% advance. However, less than 70% of the main board closed higher, with buying solid rather than euphoric. The only pocket of the Materials index that struggled after the assassination attempt on Former-President Trump was the lithium/ESG names, with the Republican candidate surging ahead of Biden at the Bookies, e.g. Liontown Resources (LTR) -3%, Pilbara (PLS) -1.3% and IGO Ltd (IGO) -1.2%. A Trump victory is good news for oil & gas as opposed to EVs, etc., as he intends to reverse Biden's climate policies.
The 2nd week of July enjoyed a dovish testimony from Jerome Powell and a lower-than-expected US CPI print (inflation), both bullish for equities, but some sectors more than others. We are now looking for bond yields and interest rates to turn lower over the coming year, which should drive some reversion on the stock/sector front. At MM, we constantly evaluate our performance from a service (survey coming this week) and portfolio performance perspective, and the standout factor of the latter is that our outperformance has come from sector and stock tilts i.e. focussing on being in the right sectors & stocks at the right time, rather than picking market direction
Will it be 3rd time lucky for the local market to attempt to break out to fresh all-time highs? We believe the answer is yes, but it certainly feels like it’s now or never, as global equity markets position themselves for lower interest rates without pricing in any meaningful risk of a recession. As for politics, equities are saying who cares if France has an unworkable government and the US is on course for a second term of a Trump Presidency. Investors are focusing on the prospect of declining interest rates while ignoring rising valuations and macro uncertainties percolating beneath the surface. This will change at some time, but for now, it’s a dangerous game fighting the bullish tape, particularly if US earnings season delivers.
The ASX200 closed down 0.2% on Wednesday but felt like a positive day to MM, with the index rallying from its early morning low to close near its intra-day high – if it weren’t for ongoing weakness by the large-cap iron ore names, it would have been a bullish reversal, e.g. BHP -1.3% and RIO -1%. The market's internals were okay, with only 52% of the ASX200 closing lower on the day, while the index itself remained above 7800, within 1.2% of its all-time high. As we’ve said a few times of late, all things being equal, the path of least resistance for the index is up, but the resources need to hold at least steady for the ASX200 to test 8000. The underperformance of the influential iron ore names, considering we’re close to all-time highs, is eye-catching:
Fed Chair Jerome Powell delivered a dovish testimony overnight, warning of the dangers of keeping interest rates too high for too long: “Reducing policy restraint too late or too little could unduly weaken economic activity and employment” and “More good data would strengthen our confidence that inflation is moving sustainably toward 2 per cent.” With the US June CPI set for release on Thursday and PPI on Friday, the groundwork has been laid for rate cuts into Christmas.
The ASX200 started the week in poor fashion, following S&P500 futures lower throughout the day in anticipation of a weak opening by Europe following the surprise French election result. Last week, markets were concerned about Le Pen, but as the results rolled in on Sunday, concerns migrated towards potential reckless spending by the victorious Left, i.e. the market interpretation being that it’s good news the Far Right lost but bad news the Far Left won. Ultimately though, moves across financial markets have been relatively muted on the view that political gridlock may at least limit the ability of the Left to enact its big-spending plans.
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