After dancing to the same tune as its US peers since COVID, Australian tech has struggled the deeper we’ve moved into 2023 – no, NVIDIA doesn’t help! At MM, we remain bullish toward the US tech names looking for fresh 2023 highs into Christmas. Still, as we saw after Xero’s (XRO) plunge on Thursday, the local market is likely to be determined on more of a case-by-case basis, especially if the Fed keep pouring cold water on the prospect that the rate hiking cycle is behind us.
For more than 18 months the RBA have been hiking interest rates at an unprecedented rate to rein in inflation, after it surged higher following the huge amounts of economic stimulus which washed through global economies through COVID. However, at MM, we believe this journey has reached its conclusion and economic contraction in 2024 will eventually necessitate rate cuts, it feels like ages since those were considered. Hence, stocks/sectors that underperformed over recent years should be well-positioned to address this relative performance gap into 2024.
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.
For more than 18 months the RBA have been hiking interest rates at an unprecedented rate to rein in inflation, after it surged higher following the huge amounts of economic stimulus which washed through global economies through COVID. However, at MM, we believe this journey has reached its conclusion and economic contraction in 2024 will eventually necessitate rate cuts, it feels like ages since those were considered. Hence, stocks/sectors that underperformed over recent years should be well-positioned to address this relative performance gap into 2024.
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.
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