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”.
Over the last eighteen months, as interest rates soared higher, the small caps have stood patiently in the naughty corner as their cost of funding has gone from bad to worse, whereas US Big Tech has rallied, assisted by their large mountains of cash. If we are correct and bond yields are “looking for a top”, then stock/sector reversion is likely in many pockets of the market, today, we have looked at the outperformers with an eye on whether some look rich at current levels.
US stocks closed lower overnight, with an NVIDIA-led sell-off in Big Tech” weighing on the indices, the Dow managed to edge higher, whereas the NASDAQ closed down -0.3%. Under the hood, Bank of America (BAC US) reported strong earnings, but Goldman Sachs (GS US) was a messier result following losses from its investment in the Greensky fintech business. Nvidia led chip companies lower as the U.S. Government looks to tighten restrictions on chip exports to China.
Last week, we saw JP Morgan (JPM US), Citigroup (C USD), and Wells Fargo (WFC US) report robust earnings, although stock gains were relatively muted as investors contemplated what comes next after the sectors enjoyed a period of rising interest rates. Analysts were made to look too bearish as they had expected slowing loan growth to reduce net interest margins (NIM), but so far, things are holding up strongly.
After a few quiet sessions, crude oil soared +5.7% higher on Friday, ending the week with the same concerns as it had opened on Monday. Investors are bracing for the ramifications of the almost inevitable ground assault on Gaza while, at the same time, the White House announced its first sanctions on companies allowing Russia to sell oil above $US60, the level set by the US and its allies – as we mentioned last week the US is “short & caught” crude oil and will be proactive in keeping the price rises in check as they rebuild their reserves.
We previously considered healthcare stocks a few months ago, with our conclusion a little on the fence – “We believe the Healthcare Sector is likely to enjoy some performance catch-up over the coming months/quarters, although there’s no clear trigger to say the moves yet commenced. “ This potential move clearly hasn’t materialised, and in a similar fashion to the last few years, patience with regard to picking major stock/sector turns is paying dividends. We know from the questions we receive that subscribers often like to buy stocks that have fallen, but we should be mindful that this is not in a rampant bull market where investors are looking to buy any dip, the attitude is more one of caution and “if in doubt keep out”.
For months, we’ve been reading that the rising cost of living, whether at the supermarket, petrol pump or higher mortgage repayments/rents, was going to push the economy into recession, but this hasn’t unfolded, although some discretionary spending has been streamlined by the consumer – not a good time to be selling smashed avocado breakfasts. The combination of substantial pandemic savings and a very strong jobs market has sheltered many households, but the latest surge in bond yields is starting to bite, with fixed mortgages having kicked from ~2% to around 6.5%. Unfortunately, we are now in the middle of the largest number of fixed mortgages rolling into painfully higher rates.
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”.
Over the last eighteen months, as interest rates soared higher, the small caps have stood patiently in the naughty corner as their cost of funding has gone from bad to worse, whereas US Big Tech has rallied, assisted by their large mountains of cash. If we are correct and bond yields are “looking for a top”, then stock/sector reversion is likely in many pockets of the market, today, we have looked at the outperformers with an eye on whether some look rich at current levels.
US stocks closed lower overnight, with an NVIDIA-led sell-off in Big Tech” weighing on the indices, the Dow managed to edge higher, whereas the NASDAQ closed down -0.3%. Under the hood, Bank of America (BAC US) reported strong earnings, but Goldman Sachs (GS US) was a messier result following losses from its investment in the Greensky fintech business. Nvidia led chip companies lower as the U.S. Government looks to tighten restrictions on chip exports to China.
Last week, we saw JP Morgan (JPM US), Citigroup (C USD), and Wells Fargo (WFC US) report robust earnings, although stock gains were relatively muted as investors contemplated what comes next after the sectors enjoyed a period of rising interest rates. Analysts were made to look too bearish as they had expected slowing loan growth to reduce net interest margins (NIM), but so far, things are holding up strongly.
After a few quiet sessions, crude oil soared +5.7% higher on Friday, ending the week with the same concerns as it had opened on Monday. Investors are bracing for the ramifications of the almost inevitable ground assault on Gaza while, at the same time, the White House announced its first sanctions on companies allowing Russia to sell oil above $US60, the level set by the US and its allies – as we mentioned last week the US is “short & caught” crude oil and will be proactive in keeping the price rises in check as they rebuild their reserves.
We previously considered healthcare stocks a few months ago, with our conclusion a little on the fence – “We believe the Healthcare Sector is likely to enjoy some performance catch-up over the coming months/quarters, although there’s no clear trigger to say the moves yet commenced. “ This potential move clearly hasn’t materialised, and in a similar fashion to the last few years, patience with regard to picking major stock/sector turns is paying dividends. We know from the questions we receive that subscribers often like to buy stocks that have fallen, but we should be mindful that this is not in a rampant bull market where investors are looking to buy any dip, the attitude is more one of caution and “if in doubt keep out”.
For months, we’ve been reading that the rising cost of living, whether at the supermarket, petrol pump or higher mortgage repayments/rents, was going to push the economy into recession, but this hasn’t unfolded, although some discretionary spending has been streamlined by the consumer – not a good time to be selling smashed avocado breakfasts. The combination of substantial pandemic savings and a very strong jobs market has sheltered many households, but the latest surge in bond yields is starting to bite, with fixed mortgages having kicked from ~2% to around 6.5%. Unfortunately, we are now in the middle of the largest number of fixed mortgages rolling into painfully higher rates.
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