We have written almost at nausea around bond yields through 2023, but while a potential reversal lower is gaining some airtime, the US 2s are still trading ~5%, as they have since July. If we prove correct and yields eventually dip back to where they spent most of Q2, the sector reversion that began a fortnight ago will be in its infancy. The MM Active Growth Portfolio is positioned for lower bond yields; hence, it outperformed by ~0.6% yesterday after enduring a tough couple of weeks when long-dated bonds made fresh 2023 highs through October. It's going to be a fascinating run into Christmas!
US inflation emphatically resumed its descent in October, pulling inflation closer to the 2-year low reached in June/July. Wall Street rallied strongly last night on inflation-fuelled optimism that the Fed's “endgame” is nigh, over 95% of the S&P500 advanced, with real estate and regional banks enjoying standout gains while the small-cap Russell 2000 Index outperformed, adding ~5.3%, well over twice the gain of the S&P500, i.e. in equities it was a big night of “risk on” and rebalancing portfolios as US 2 years plunged ~0.2% to below 4.85% and the $US fell -1.4%, the most since January.
ELD surged +18.28% on Monday after the agricultural services business delivered a small beat for FY23 - sales fell 4% to $3.3b, slightly ahead of consensus. However, cash conversion caught the eye with operating cash flow ~50% above consensus, helping the company to pay a 23cps div (30% franked), 7cps above expectations, i.e. the stocks now forecast to yield ~7% over the coming 12 months. The company has encouragingly managed costs far better than expected, and it appeared on Monday that many traders decided all at once that the reason for being extremely negative towards the stock had disappeared in one set of numbers.
The local Tech Sector is up +16.5% year to date, but it doesn’t feel like it when we enviously consider the surge back towards all-time highs by their US peers, local sentiment was not helped last week by sector heavyweight Xero (XRO) down -11%. We went overweight the local tech sector in anticipation of an aggressive rally into 2024 led by their US peers. We got a few pieces of the puzzle correct, but our Altium (ALU) and Xero (XRO) positions show a paper loss of ~1% - we hold these two stocks in our Active Growth Portfolio.
After dancing to the same tune as its US peers since COVID, Australian tech has struggled the deeper we’ve moved into 2023 – no, NVIDIA doesn’t help! At MM, we remain bullish toward the US tech names looking for fresh 2023 highs into Christmas. Still, as we saw after Xero’s (XRO) plunge on Thursday, the local market is likely to be determined on more of a case-by-case basis, especially if the Fed keep pouring cold water on the prospect that the rate hiking cycle is behind us.
For more than 18 months the RBA have been hiking interest rates at an unprecedented rate to rein in inflation, after it surged higher following the huge amounts of economic stimulus which washed through global economies through COVID. However, at MM, we believe this journey has reached its conclusion and economic contraction in 2024 will eventually necessitate rate cuts, it feels like ages since those were considered. Hence, stocks/sectors that underperformed over recent years should be well-positioned to address this relative performance gap into 2024.
As most people know, Michele Bullock and the RBA ignored MM’s advice and hiked rates another 0.25% on Melbourne Cup Day. It feels like a long time, but it was just 20 months ago that the Australian Cash rate was comfortably idling at 0.1% before the RBA disregarded the early telltale signs that inflation was rising, allowing the inflation genie to escape from the proverbial lamp. We believe yesterday was a similar case in point but in reverse with the Australian economy already starting to slow, but borrowers still coped a hike when a no change would have been prudent; time will tell if we’re correct.
The ASX Healthcare sector has been the main underperformer through 2023, falling over -10%, while the Tech Sector has advanced closer to +20%. There have been some standout laggards in this much-loved sector, with Healius (HLS) and PolyNovo (PNV) down over -30% year-to-date, while only Cochlear and Pro Medicus (PME) have managed to post gains coming into November. Contrarian investors such as Chris Kourtis at Ellerston Capital have started buying names in the battered sector, including ResMed (RMD) and CSL Ltd (CSL) – they certainly look cheap on a historical basis.
The RBA step up to the plate tomorrow with their latest rate decision. On balance, we believe they shouldn't and won't hike as weakness creeps into the local economy, Q1 and Q2 of 2024 could be a testing time for many people in Australia. However, the futures markets are leaning towards a hike after four consecutive meetings where rates were left steady, although consensus has been bouncing around from economic print to economic print, both at home and overseas. The US employment numbers on Friday were weaker than expected, boosting hopes the Fed has finished hiking rates while the UK is already flirting with a recession, it surely isn't the time to hike for the RBA.
The Real Estate Sector has endured tough times of late, the local sector is down close to 5% in 2023, while the US equivalent has plunged over -38% from its early 2022 high, less than two years ago. Post-Covid, we’ve seen some tremendous returns from battered sectors when the dial finally turned with Tech, Coal and Gold all coming to mind, we believe the Property Sector could be throwing its hat into the proverbial ring as the next candidate.
US inflation emphatically resumed its descent in October, pulling inflation closer to the 2-year low reached in June/July. Wall Street rallied strongly last night on inflation-fuelled optimism that the Fed's “endgame” is nigh, over 95% of the S&P500 advanced, with real estate and regional banks enjoying standout gains while the small-cap Russell 2000 Index outperformed, adding ~5.3%, well over twice the gain of the S&P500, i.e. in equities it was a big night of “risk on” and rebalancing portfolios as US 2 years plunged ~0.2% to below 4.85% and the $US fell -1.4%, the most since January.
ELD surged +18.28% on Monday after the agricultural services business delivered a small beat for FY23 - sales fell 4% to $3.3b, slightly ahead of consensus. However, cash conversion caught the eye with operating cash flow ~50% above consensus, helping the company to pay a 23cps div (30% franked), 7cps above expectations, i.e. the stocks now forecast to yield ~7% over the coming 12 months. The company has encouragingly managed costs far better than expected, and it appeared on Monday that many traders decided all at once that the reason for being extremely negative towards the stock had disappeared in one set of numbers.
The local Tech Sector is up +16.5% year to date, but it doesn’t feel like it when we enviously consider the surge back towards all-time highs by their US peers, local sentiment was not helped last week by sector heavyweight Xero (XRO) down -11%. We went overweight the local tech sector in anticipation of an aggressive rally into 2024 led by their US peers. We got a few pieces of the puzzle correct, but our Altium (ALU) and Xero (XRO) positions show a paper loss of ~1% - we hold these two stocks in our Active Growth Portfolio.
After dancing to the same tune as its US peers since COVID, Australian tech has struggled the deeper we’ve moved into 2023 – no, NVIDIA doesn’t help! At MM, we remain bullish toward the US tech names looking for fresh 2023 highs into Christmas. Still, as we saw after Xero’s (XRO) plunge on Thursday, the local market is likely to be determined on more of a case-by-case basis, especially if the Fed keep pouring cold water on the prospect that the rate hiking cycle is behind us.
For more than 18 months the RBA have been hiking interest rates at an unprecedented rate to rein in inflation, after it surged higher following the huge amounts of economic stimulus which washed through global economies through COVID. However, at MM, we believe this journey has reached its conclusion and economic contraction in 2024 will eventually necessitate rate cuts, it feels like ages since those were considered. Hence, stocks/sectors that underperformed over recent years should be well-positioned to address this relative performance gap into 2024.
As most people know, Michele Bullock and the RBA ignored MM’s advice and hiked rates another 0.25% on Melbourne Cup Day. It feels like a long time, but it was just 20 months ago that the Australian Cash rate was comfortably idling at 0.1% before the RBA disregarded the early telltale signs that inflation was rising, allowing the inflation genie to escape from the proverbial lamp. We believe yesterday was a similar case in point but in reverse with the Australian economy already starting to slow, but borrowers still coped a hike when a no change would have been prudent; time will tell if we’re correct.
The ASX Healthcare sector has been the main underperformer through 2023, falling over -10%, while the Tech Sector has advanced closer to +20%. There have been some standout laggards in this much-loved sector, with Healius (HLS) and PolyNovo (PNV) down over -30% year-to-date, while only Cochlear and Pro Medicus (PME) have managed to post gains coming into November. Contrarian investors such as Chris Kourtis at Ellerston Capital have started buying names in the battered sector, including ResMed (RMD) and CSL Ltd (CSL) – they certainly look cheap on a historical basis.
The RBA step up to the plate tomorrow with their latest rate decision. On balance, we believe they shouldn't and won't hike as weakness creeps into the local economy, Q1 and Q2 of 2024 could be a testing time for many people in Australia. However, the futures markets are leaning towards a hike after four consecutive meetings where rates were left steady, although consensus has been bouncing around from economic print to economic print, both at home and overseas. The US employment numbers on Friday were weaker than expected, boosting hopes the Fed has finished hiking rates while the UK is already flirting with a recession, it surely isn't the time to hike for the RBA.
The Real Estate Sector has endured tough times of late, the local sector is down close to 5% in 2023, while the US equivalent has plunged over -38% from its early 2022 high, less than two years ago. Post-Covid, we’ve seen some tremendous returns from battered sectors when the dial finally turned with Tech, Coal and Gold all coming to mind, we believe the Property Sector could be throwing its hat into the proverbial ring as the next candidate.
Check your email for an email from [email protected]
Subject: Your OTP for Account Access
This email will have a code you can use as your One Time Password for instant access
Verication email sent.
Check your email for an email from [email protected]
Subject: Your OTP for Account Access
This email will have a code you can use as your One Time Password for instant access
!
Invalid One Time Password
Please check you entered the correct info, please also note there is a 10minute time limit on the One Time Passcode
To reset your password, enter your email address
A link to create a new password will be sent to the email address you have registered to your account.
