On the 18th of this month, we saw the usual rebalancing unfold for the ASX200, one of the reasons the index does well over time as the strong enter and the weak fall by the wayside. There's potentially a lesson here with S&P naturally discarding its underperformers and embracing newfound stars, portfolios that adopt a similar psyche over time are likely to outperform those that don’t cut losses. Remember, the best investors/traders regularly follow one golden rule: Run your profits and cut your losses. At MM, our opinion is that the second half of this saying is the most important, i.e., if a stock we are holding drops out of the ASX200 for whatever reason, we should question if it’s still worth holding.
The ASX200 recovered impressively from an early 100-point drop on Friday morning. On balance, we believe the index will again hold the 7000 psychological support area, although, from a technical perspective, we would need a close above 7150 to believe a swing low is in place. With all 11 sectors closing lower last week, there wasn’t much encouragement for the bulls, but we are conscious that just one week ago, it was the complete reverse.
Tech stocks traditionally don’t like rising interest rates, although, as the chart below illustrates, it’s not a perfect science. Over the last 12 months, the sector has roared ahead as a number of the mega-caps showed they could deliver earnings in a tough economic backdrop. Plus, they’ve been anticipating “peak interest rates”, but the Fed's recent hawkish commentary has raised questions about the timing of this view into Christmas and beyond.
An increasing Australian population will ultimately lead to increased money flow into stocks and, by definition, support valuations as the growing pool of workers will likely further swell Australia's pension fund assets to a colossal ~A$14 trillion by 2050, with a younger workforce likely to see asset allocations remain favourable toward stocks. We don’t believe the subsequent growth is currently priced into equities with the implied medium-term earnings growth for the ASX200 of just under 4.0% per annum over the next decade, comparing favourably to GDP estimates of around ~5.3% p.a. over the same period.
Tuesday was another tough day at the office for Australian equities, with a +0.2% gain by the Energy Sector the only shining light as the index ended down 0.5%. It came as no surprise to MM that buyers remained on the sidelines before Wednesday night's FOMC meeting, i.e. will the Fed hike, probably not, but the bias implied through the Dot Plot is what’s likely to determine how the market moves. With the S&P500 within striking distance of its 2023 high and the US 10-year yielding 4.3%, we believe there is a diminishing amount of room for a hawkish Fed.
Both pre and post-COVID the banks and insurers have followed a relatively similar path although there was a period of major outperformance by the Banks through 2021, and early 2022. The banking index in a similar fashion to the ASX, has trod water over the last two years while the insurers have ground higher. Hence we question today whether the likes of QBE & IAG will prove a better investment into 2024 and beyond, especially with some economists concerned by the dramatically named “mortgage cliff” although it hasn’t called any major issues so far.
The ASX200 is almost flat after a fascinating first half of September, although under the hood, it’s a very different story, with the Energy Index up +3.6% while the Real Estate sector is down -3.2%. Unfortunately for the index, the heavyweight financials and materials sectors are also positive, while the other eight sectors are all negative to date for September. As we keep saying, until further notice, most of the excitement into 2024 will be on the stock and sector level.
Uranium stocks have surged higher over the last 48 hours and we believe this is a move to embrace, not fade – remember our very bullish outlook in the MM Resources into FY24 webinar. The uranium price has more than doubled over recent months, posting fresh decade highs in the process. It’s a straightforward game of supply & demand that has reached a tipping point as Utilities that have been drawing down inventory levels suddenly have to chase supply.
Not surprisingly, the correlation between the S&P500 Energy Sector and the crude oil price has been very strong since well before COVID but since Q4 of 2022 stocks have noticeably outperformed and are starting to feel stretched in comparison. Also, the Energy Sector has become a favourite of quant models/fund managers over the last few years as it grinds ever higher against a choppy and uncertain backdrop.
The ASX200 again recovered from early weakness to close up +0.2% although we still saw more stocks decline led by the Energy Sector although the market appears to have got this one wrong following crude oils pop over $US91/barrel last night. This morning may see many short-term players hang on the sidelines ahead of this month's important inflation data out of the US, the interpretation of which plus next week's FOMC meeting is likely to set the tone for bond yields over the coming weeks.
The ASX200 recovered impressively from an early 100-point drop on Friday morning. On balance, we believe the index will again hold the 7000 psychological support area, although, from a technical perspective, we would need a close above 7150 to believe a swing low is in place. With all 11 sectors closing lower last week, there wasn’t much encouragement for the bulls, but we are conscious that just one week ago, it was the complete reverse.
Tech stocks traditionally don’t like rising interest rates, although, as the chart below illustrates, it’s not a perfect science. Over the last 12 months, the sector has roared ahead as a number of the mega-caps showed they could deliver earnings in a tough economic backdrop. Plus, they’ve been anticipating “peak interest rates”, but the Fed's recent hawkish commentary has raised questions about the timing of this view into Christmas and beyond.
An increasing Australian population will ultimately lead to increased money flow into stocks and, by definition, support valuations as the growing pool of workers will likely further swell Australia's pension fund assets to a colossal ~A$14 trillion by 2050, with a younger workforce likely to see asset allocations remain favourable toward stocks. We don’t believe the subsequent growth is currently priced into equities with the implied medium-term earnings growth for the ASX200 of just under 4.0% per annum over the next decade, comparing favourably to GDP estimates of around ~5.3% p.a. over the same period.
Tuesday was another tough day at the office for Australian equities, with a +0.2% gain by the Energy Sector the only shining light as the index ended down 0.5%. It came as no surprise to MM that buyers remained on the sidelines before Wednesday night's FOMC meeting, i.e. will the Fed hike, probably not, but the bias implied through the Dot Plot is what’s likely to determine how the market moves. With the S&P500 within striking distance of its 2023 high and the US 10-year yielding 4.3%, we believe there is a diminishing amount of room for a hawkish Fed.
Both pre and post-COVID the banks and insurers have followed a relatively similar path although there was a period of major outperformance by the Banks through 2021, and early 2022. The banking index in a similar fashion to the ASX, has trod water over the last two years while the insurers have ground higher. Hence we question today whether the likes of QBE & IAG will prove a better investment into 2024 and beyond, especially with some economists concerned by the dramatically named “mortgage cliff” although it hasn’t called any major issues so far.
The ASX200 is almost flat after a fascinating first half of September, although under the hood, it’s a very different story, with the Energy Index up +3.6% while the Real Estate sector is down -3.2%. Unfortunately for the index, the heavyweight financials and materials sectors are also positive, while the other eight sectors are all negative to date for September. As we keep saying, until further notice, most of the excitement into 2024 will be on the stock and sector level.
Uranium stocks have surged higher over the last 48 hours and we believe this is a move to embrace, not fade – remember our very bullish outlook in the MM Resources into FY24 webinar. The uranium price has more than doubled over recent months, posting fresh decade highs in the process. It’s a straightforward game of supply & demand that has reached a tipping point as Utilities that have been drawing down inventory levels suddenly have to chase supply.
Not surprisingly, the correlation between the S&P500 Energy Sector and the crude oil price has been very strong since well before COVID but since Q4 of 2022 stocks have noticeably outperformed and are starting to feel stretched in comparison. Also, the Energy Sector has become a favourite of quant models/fund managers over the last few years as it grinds ever higher against a choppy and uncertain backdrop.
The ASX200 again recovered from early weakness to close up +0.2% although we still saw more stocks decline led by the Energy Sector although the market appears to have got this one wrong following crude oils pop over $US91/barrel last night. This morning may see many short-term players hang on the sidelines ahead of this month's important inflation data out of the US, the interpretation of which plus next week's FOMC meeting is likely to set the tone for bond yields over the coming weeks.
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.
