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.
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.
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.
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.
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