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.
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.
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.
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.
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.
Market Matters members receive daily market reports, real-time trade alerts, full access to 5 portfolios and dynamic company data.
Choose how you'd like to proceed:
We have a range of membership options to suit your needs and budget, why not join today and get unlimited access to the premium Market Matters service.
