Yesterday, we heard that Woodside (WDS) and Santos (STO) are considering a $80bn oil & gas merger following the global trend as their operating landscape changes with decarbonisation pressures increasing rapidly. Discussions are at an early stage, with no certainty a deal will be forthcoming; they might be testing the market's response following the overnight announcement. Over recent months, major shareholders have been touting ideas on how STO could unlock shareholder value, including a break-up of the business.
We remain bullish equities through December with the ASX200 Accumulation index poised to make fresh all-time highs, i.e. the ASX200, including dividends. Hopes of lower interest rates are driving the recent rally through 2024. However, investors are largely ignoring the risks of an economic contraction as the hiking cycle bites consumers and borrowers – the “Goldilocks scenario” is the market's current preferred scenario.
The ASX200 reversed lower for the week on Tuesday as the Resources Sector led the declines, e.g. Pilbara (PLS) -8.5%, IGO Ltd (IGO) -6.7%, Northern Star (NST) -4%, and Sandfire Resources (SFR) -3%. However, with well over 80% of the main board closing lower, there were few bright pockets, with the exception of the Healthcare Sector, which enjoyed a defensive bid, ultimately closing up 0.03%, not conclusive but at least positive.
Always expect the unexpected is a very useful adage for investors, and today, we have looked at 3 cases that would put a spanner in the works for the majority of investors as they sit in the contrarian corner with 2024 looming on the horizon – it's now only 20-days until Christmas. It’s worth remember this time last year; everybody was bullish on the EV trade while gold was hardly getting a mention. Here we are with a few weeks left of 2023, and lithium has crashed ~80% while gold posted fresh all-time highs.
Last week saw US bonds accelerate on the upside (yields lower), taking stocks higher for their 5th consecutive week; the S&P500 posted its highest close since March 2022. Fed Chair Jerome Powell poured fuel on the Dove’s already raging fire, saying the central bank policy is “well into restrictive territory.” The result was the 2s are now trading ~1% below the Upper Limit of the Fed Funds Target Rate as trader’s price in rate cuts by the Fed next year.
Under the hood of stock markets, “The cream rises to the top”, just as it used to when the milkman used to deliver milk in glass bottles door to door every morning, good weather or bad – we know Shawn can still remember this, I wonder how many subscribers? The same effectively unfolds across indices as stocks are promoted/relegated fairly regularly, with 15 stocks changing places in 2023.
Global bond yields have reversed lower in recent weeks, and at MM, we believe they’ve peaked for this rate hiking cycle. From an investment perspective, we believe portfolios should be positioned for two chapters over the coming 6-12 months, assuming we see no Black Swan events, "risk-on" and 'Risk-off."
Retail sales came in softer than expected in October, down -0.2% from September, missing forecasts of a 0.1% rise. We believe households are slowing their spending faster than many recognise, with the exception of the debt-free retirees who are enjoying today's high-interest rate environment. Discretionary spending is declining into Christmas, we can see it “freezing over” in the New Year unless things change dramatically, i.e. the average person is simply paying too much in rent/mortgages before even considering the increased cost of fuel, food, etc.
The sharp correction by lithium and its related stocks has been the undoing of many portfolios through 2023 after the year started with many investors wanting exposure to the EV revolution – we discussed it as a crowded space at the time, but its demise this year has been deeper than we imagined. Last week saw Lithium prices in China fall sharply to their lowest point in over 2 years after a trial delivery of the critical battery metal to the Guangzhou Futures Exchange indicated a larger-than-expected supply.
The S&P500 is up +8.7% in November, one of its best performances in the last century, with December still to come. Assuming central banks, particularly the Fed, keep off their hawkish Tannoy’s into the New Year, we anticipate a pop to fresh 2023 and potentially new all-time highs in the coming weeks – only 1.3% & 5.7% higher, respectively. Investors are starting to believe that strong businesses are adapting well to higher rates, hence the strong getting stronger & vice-versa.
We remain bullish equities through December with the ASX200 Accumulation index poised to make fresh all-time highs, i.e. the ASX200, including dividends. Hopes of lower interest rates are driving the recent rally through 2024. However, investors are largely ignoring the risks of an economic contraction as the hiking cycle bites consumers and borrowers – the “Goldilocks scenario” is the market's current preferred scenario.
The ASX200 reversed lower for the week on Tuesday as the Resources Sector led the declines, e.g. Pilbara (PLS) -8.5%, IGO Ltd (IGO) -6.7%, Northern Star (NST) -4%, and Sandfire Resources (SFR) -3%. However, with well over 80% of the main board closing lower, there were few bright pockets, with the exception of the Healthcare Sector, which enjoyed a defensive bid, ultimately closing up 0.03%, not conclusive but at least positive.
Always expect the unexpected is a very useful adage for investors, and today, we have looked at 3 cases that would put a spanner in the works for the majority of investors as they sit in the contrarian corner with 2024 looming on the horizon – it's now only 20-days until Christmas. It’s worth remember this time last year; everybody was bullish on the EV trade while gold was hardly getting a mention. Here we are with a few weeks left of 2023, and lithium has crashed ~80% while gold posted fresh all-time highs.
Last week saw US bonds accelerate on the upside (yields lower), taking stocks higher for their 5th consecutive week; the S&P500 posted its highest close since March 2022. Fed Chair Jerome Powell poured fuel on the Dove’s already raging fire, saying the central bank policy is “well into restrictive territory.” The result was the 2s are now trading ~1% below the Upper Limit of the Fed Funds Target Rate as trader’s price in rate cuts by the Fed next year.
Under the hood of stock markets, “The cream rises to the top”, just as it used to when the milkman used to deliver milk in glass bottles door to door every morning, good weather or bad – we know Shawn can still remember this, I wonder how many subscribers? The same effectively unfolds across indices as stocks are promoted/relegated fairly regularly, with 15 stocks changing places in 2023.
Global bond yields have reversed lower in recent weeks, and at MM, we believe they’ve peaked for this rate hiking cycle. From an investment perspective, we believe portfolios should be positioned for two chapters over the coming 6-12 months, assuming we see no Black Swan events, "risk-on" and 'Risk-off."
Retail sales came in softer than expected in October, down -0.2% from September, missing forecasts of a 0.1% rise. We believe households are slowing their spending faster than many recognise, with the exception of the debt-free retirees who are enjoying today's high-interest rate environment. Discretionary spending is declining into Christmas, we can see it “freezing over” in the New Year unless things change dramatically, i.e. the average person is simply paying too much in rent/mortgages before even considering the increased cost of fuel, food, etc.
The sharp correction by lithium and its related stocks has been the undoing of many portfolios through 2023 after the year started with many investors wanting exposure to the EV revolution – we discussed it as a crowded space at the time, but its demise this year has been deeper than we imagined. Last week saw Lithium prices in China fall sharply to their lowest point in over 2 years after a trial delivery of the critical battery metal to the Guangzhou Futures Exchange indicated a larger-than-expected supply.
The S&P500 is up +8.7% in November, one of its best performances in the last century, with December still to come. Assuming central banks, particularly the Fed, keep off their hawkish Tannoy’s into the New Year, we anticipate a pop to fresh 2023 and potentially new all-time highs in the coming weeks – only 1.3% & 5.7% higher, respectively. Investors are starting to believe that strong businesses are adapting well to higher rates, hence the strong getting stronger & vice-versa.
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