Yesterday, BHP announced they were on track to invest another $7.7bn into the second stage of its mammoth potash project based in Canada. The investment is set to double production, making its Jansen potash project one of the world's largest mines – BHP has to adopt a “get big or get out” approach to the investments; otherwise, it simply won't move the dial on its earnings profile, the primary reason it hasn’t ventured into lithium. The war between Russia and Ukraine has seen prices double, creating inflation across the food industry, with potash being a core fertiliser for crops such as corn and wheat.
US indices rallied overnight, reducing losses for October but still registering its first 3-month losing streak since 2020, the S&P500 closed up over 0.6% near the session’s high – bond yields surging to levels not witnessed for 16-years have weighed on stocks through September/October. Real estate and financials outperformed on the sector level while it was a mixed bag under the hood of the influential tech sector, with NVIDIA (NVDA US) and Meta Platforms (META US) closing lower.
The NYSE FANG+ Index has corrected over 15% since July, but it wouldn’t take much of a Christmas rally to test its all-time high, especially if Apple Inc (AAPL US) delivers a strong result on Thursday. The performance of the US big tech names has been extremely varied through 2023, from NVIDIA (NVDA US) +180% to Tesla (TSLA US) +60%, but the overriding common denominator is they’ve all enjoyed a strong year-to-date, even as bond yields have surged ever higher.
The worst October in five years has seen active money managers cut their equity exposure to its lowest level in more than 12-months as the trifecta of bad news continues to weigh on stocks. The US S&P500 has already fallen by more than 1% on five occasions in October, and we still have two sessions remaining. With Apple reporting on the 2nd of November, next month also looks likely to start with ongoing elevated volatility.
As the ASX200 plumbed levels not witnessed since early November, it wasn’t surprising to see numerous stocks make fresh 12-month lows. However, it should be recognised that the broad-based nature of the weakness is very real, i.e. over 15x more stocks registered new 52-week lows as opposed to 52-week highs. What did catch our attention was that the large losers column was littered with many extremely poor performers over recent years; as we’ve been saying almost ad nauseam, the weak are getting weaker at this stage of the cycle.
The ASX200 regularly has a clearing of the decks for a number of reasons, from takeovers to deep underperformance leading to a business losing its status as a top-quality large-cap business, and vice versa. Last September, we saw the exit of stocks such as Zip (ZIP) and City Chic (CCX), which had both endured their stock plunging from +$14 and +$6, respectively, to around 30c, by definition crushing their market cap in the process – two of the main criteria of eligibility to be in the ASX200 are market cap and liquidity.
At MM, we continue to foresee the next major swing in bond yields will be lower, and we believe they are “looking for a top”, but as we’ve said a few times through 2023, trends post the GFC have been lasting longer than many imagined. Also, it's important to recognise that falling bond yields won't necessarily be good for stocks if they're driven lower by a weakening economy, or a recession, but it will fuel some dramatic stock/sector rotation – Dr Copper has been flagging looming economic problems since January with the economic bellwether down ~19% from its 2023 high.
Global equities have been trading sideways for the last few years, albeit with ~15% swings on either side of the mean. However, as we’ve discussed previously, there will be plenty of winners & losers on the stock level, especially as bond yields experience their most rapid appreciation in our lifetime, e.g. year-to-date: ANZ Bank (ANZ) +6.6% but Bank of Queensland (BOQ) -19.3% and Cochlear (COH) +21.2% & CSL Ltd (CSL) -17.7%. Excuse the pun, but with the Melbourne Cup looming, it's all about backing the right horse at this stage.
It's hard to know exactly which factor is dragging on equities the most, but the combination isn’t pretty, the ASX200 closed down -3.5% in September, and for October, it has already fallen another -2.1% with another ~1% drop likely this morning following steep losses on Wall Street on Friday night. We are not in the business of second-guessing how the Israel -Hamas conflict will unfold, but when we read headlines such as “Israel strikes Gaza, Syria and the West Bank”, it does feel like the conflict will overhang markets for weeks/months to come.
One of the three stocks we are revisiting today is the best-performing member of the ASX200 year-to-date, although it will lose that position when trading recommences after its capital raise. The other two, Whitehaven Coal (WHC) -20.5%, and Ramsay Healthcare (RHC) -22%, have regularly occupied the lower enclosure through 2023. As is usually the case with “situation” stocks, the best approach is to consider the combination of risk/reward and “what if scenarios”.
US indices rallied overnight, reducing losses for October but still registering its first 3-month losing streak since 2020, the S&P500 closed up over 0.6% near the session’s high – bond yields surging to levels not witnessed for 16-years have weighed on stocks through September/October. Real estate and financials outperformed on the sector level while it was a mixed bag under the hood of the influential tech sector, with NVIDIA (NVDA US) and Meta Platforms (META US) closing lower.
The NYSE FANG+ Index has corrected over 15% since July, but it wouldn’t take much of a Christmas rally to test its all-time high, especially if Apple Inc (AAPL US) delivers a strong result on Thursday. The performance of the US big tech names has been extremely varied through 2023, from NVIDIA (NVDA US) +180% to Tesla (TSLA US) +60%, but the overriding common denominator is they’ve all enjoyed a strong year-to-date, even as bond yields have surged ever higher.
The worst October in five years has seen active money managers cut their equity exposure to its lowest level in more than 12-months as the trifecta of bad news continues to weigh on stocks. The US S&P500 has already fallen by more than 1% on five occasions in October, and we still have two sessions remaining. With Apple reporting on the 2nd of November, next month also looks likely to start with ongoing elevated volatility.
As the ASX200 plumbed levels not witnessed since early November, it wasn’t surprising to see numerous stocks make fresh 12-month lows. However, it should be recognised that the broad-based nature of the weakness is very real, i.e. over 15x more stocks registered new 52-week lows as opposed to 52-week highs. What did catch our attention was that the large losers column was littered with many extremely poor performers over recent years; as we’ve been saying almost ad nauseam, the weak are getting weaker at this stage of the cycle.
The ASX200 regularly has a clearing of the decks for a number of reasons, from takeovers to deep underperformance leading to a business losing its status as a top-quality large-cap business, and vice versa. Last September, we saw the exit of stocks such as Zip (ZIP) and City Chic (CCX), which had both endured their stock plunging from +$14 and +$6, respectively, to around 30c, by definition crushing their market cap in the process – two of the main criteria of eligibility to be in the ASX200 are market cap and liquidity.
At MM, we continue to foresee the next major swing in bond yields will be lower, and we believe they are “looking for a top”, but as we’ve said a few times through 2023, trends post the GFC have been lasting longer than many imagined. Also, it's important to recognise that falling bond yields won't necessarily be good for stocks if they're driven lower by a weakening economy, or a recession, but it will fuel some dramatic stock/sector rotation – Dr Copper has been flagging looming economic problems since January with the economic bellwether down ~19% from its 2023 high.
Global equities have been trading sideways for the last few years, albeit with ~15% swings on either side of the mean. However, as we’ve discussed previously, there will be plenty of winners & losers on the stock level, especially as bond yields experience their most rapid appreciation in our lifetime, e.g. year-to-date: ANZ Bank (ANZ) +6.6% but Bank of Queensland (BOQ) -19.3% and Cochlear (COH) +21.2% & CSL Ltd (CSL) -17.7%. Excuse the pun, but with the Melbourne Cup looming, it's all about backing the right horse at this stage.
It's hard to know exactly which factor is dragging on equities the most, but the combination isn’t pretty, the ASX200 closed down -3.5% in September, and for October, it has already fallen another -2.1% with another ~1% drop likely this morning following steep losses on Wall Street on Friday night. We are not in the business of second-guessing how the Israel -Hamas conflict will unfold, but when we read headlines such as “Israel strikes Gaza, Syria and the West Bank”, it does feel like the conflict will overhang markets for weeks/months to come.
One of the three stocks we are revisiting today is the best-performing member of the ASX200 year-to-date, although it will lose that position when trading recommences after its capital raise. The other two, Whitehaven Coal (WHC) -20.5%, and Ramsay Healthcare (RHC) -22%, have regularly occupied the lower enclosure through 2023. As is usually the case with “situation” stocks, the best approach is to consider the combination of risk/reward and “what if scenarios”.
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