Overnight US markets sold off aggressively after a hotter-than-expected CPI inflation read left the optimistic Doves near-term rate cut hopes in tatters. Bonds and stocks both slid following the release, which climbed the most in eight months just when investors were expecting confirmation that inflation is under control; the US 2s climbed back to levels not seen since the December central bank “pivot” – another example of crowded positioning coming under pressure. The release added credibility to Jerome Powell's “wait-and-see attitude”, with the futures now pricing in a Fed Funds rate of ~4.45% by Christmas, around four cuts.
Crude oil has been supported by major geo-political events since COVID, but it's not delivered an overly exciting performance from the ASX oil & gas names – uranium has been the big winner in the Energy Sector. The supply and demand fundamentals continue to concern some analysts as record U.S. production combined with a weak Chinese economy creates risks of oversupply, potentially offsetting tensions in the Middle East and the Russia/Ukraine war. Brent crude is trading around its average level of the last five years, albeit with some volatile spikes in both directions.
Lithium has been dominating the news around the demise of the ESG Sector for months, but nickel has come to the fore of late as the collapse in the commodities price has led to the closure of mines operated by IGO and Twiggy Forrest’s Wyloo. Now heavyweight BHP Group (BHP) is feeling the pinch with estimates that its Nickel West business is losing $50m a month. The government has even been involved as it aims for a carbon-zero economy by 2030, a big ask if Australian businesses are losing millions in the pursuit of their optimistic goal.
The Australian Healthcare Sector has surged ~30% since late October, and although we are bullish over the coming years, a period of consolidation is overdue, and an 8-10% pullback wouldn’t surprise - at current levels, we aren’t looking to increase our exposure to the sector, pretty much in line with our view on the market in general. The sector has shown a strong inverse correlation to bond yields over the years, falling sharply when bonds rally/yields fall and vice versa. MM’s macro outlook is yields will fall through 2024/5 but not as fast as many hope, and the futures are pricing, another reason why we can see a pullback following the recent strong advance.
Reporting season throws up increased volatility on the stock level, illustrated perfectly by the +20% surge higher by Facebook parent Meta Platforms (META US) last week. However, when the market is positioned very bearishly towards a stock, and it beats or isn’t too bad, the move can be exaggerated on the upside as shorts look to buy back stock &/or fund managers attempt to get some exposure before it gets away from them. While shorting can get a lot of headlines, it is difficult to consistently get right and big losses from shorts are common place. When short a stock and it rallies, the problem gets bigger/worse, unlike a bought stock that goes down, the problem gets less influential on returns. Buying heavily shorted stocks can at times yield strong, quick gains.
The ASX200 fell another -0.6% on Tuesday, with over 60% of the main board closing lower, the Energy Sector being the lone wolf that managed to close up. The Resources Sector again caught our attention after ongoing measures by Beijing to stem the rout in their equities market helped the Shanghai Composite to rally over +3% following a number of announcements, including the state funds vow to boost stock purchases – a reason to cut any China facing shorts in our opinion.
On December 6th, we held a Webinar “Analysing our seven highest conviction calls”, which we believe has fared pretty well over the last two months, but in today's market, we cannot be complacent, needing to evaluate our positions and views constantly. We strongly recommend subscribers revisit the webinar, which covered the seven stocks and explained some of the Market Matters website's exciting functionality.
Social Media giant Meta Platforms surged after their results beat analysts' expectations, and they announced the company's first-ever quarterly dividend plus a $US50bn share buyback program, i.e. a greater than the entire market cap of Macquarie Group (MQG). Of the “Magnificent Seven,” last week we saw Meta Platforms (META US), NVIDIA (NVDA US), Amazon.com (AMZN US), Alphabet (GOOGL US), and Microsoft (MSFT US) all make fresh all-time highs while Apple Inc (AAPL US) and Tesla (TSLA US) struggled, plus Alphabet (GOOGL US) had reversed lower come Friday, in other words, its become the “Dominant Four”, not traditional broad-based buying but its proving hard to fight the tape at this stage.
The Australian Consumer Staples sector has struggled over recent years, but as MM looks to position portfolios more defensively, it's been on our radar of late, i.e. people have to eat. With interest rates set to fall through 2024/5, inflation under control and supply chain issues in the rearview mirror, the outlook has improved for the sector. The peak cost of living has passed, with spending growth on the horizon, helped by solid immigration, with supermarkets likely to be a key beneficiary.
Overnight saw the Fed hold interest rates steady for the 4th straight meeting while signalling its openness to cut, if not straight away. The Futures markets are now pricing in an implied Fed Funds rate of 3.695% in January 2025, well below today's effective 5.33% rate – we still believe this outlook will prove too dovish as we move through 2024. Jerome Powell shocked many doves when he effectively took a March cut off the table during the press conference, investors need to be patient!
Crude oil has been supported by major geo-political events since COVID, but it's not delivered an overly exciting performance from the ASX oil & gas names – uranium has been the big winner in the Energy Sector. The supply and demand fundamentals continue to concern some analysts as record U.S. production combined with a weak Chinese economy creates risks of oversupply, potentially offsetting tensions in the Middle East and the Russia/Ukraine war. Brent crude is trading around its average level of the last five years, albeit with some volatile spikes in both directions.
Lithium has been dominating the news around the demise of the ESG Sector for months, but nickel has come to the fore of late as the collapse in the commodities price has led to the closure of mines operated by IGO and Twiggy Forrest’s Wyloo. Now heavyweight BHP Group (BHP) is feeling the pinch with estimates that its Nickel West business is losing $50m a month. The government has even been involved as it aims for a carbon-zero economy by 2030, a big ask if Australian businesses are losing millions in the pursuit of their optimistic goal.
The Australian Healthcare Sector has surged ~30% since late October, and although we are bullish over the coming years, a period of consolidation is overdue, and an 8-10% pullback wouldn’t surprise - at current levels, we aren’t looking to increase our exposure to the sector, pretty much in line with our view on the market in general. The sector has shown a strong inverse correlation to bond yields over the years, falling sharply when bonds rally/yields fall and vice versa. MM’s macro outlook is yields will fall through 2024/5 but not as fast as many hope, and the futures are pricing, another reason why we can see a pullback following the recent strong advance.
Reporting season throws up increased volatility on the stock level, illustrated perfectly by the +20% surge higher by Facebook parent Meta Platforms (META US) last week. However, when the market is positioned very bearishly towards a stock, and it beats or isn’t too bad, the move can be exaggerated on the upside as shorts look to buy back stock &/or fund managers attempt to get some exposure before it gets away from them. While shorting can get a lot of headlines, it is difficult to consistently get right and big losses from shorts are common place. When short a stock and it rallies, the problem gets bigger/worse, unlike a bought stock that goes down, the problem gets less influential on returns. Buying heavily shorted stocks can at times yield strong, quick gains.
The ASX200 fell another -0.6% on Tuesday, with over 60% of the main board closing lower, the Energy Sector being the lone wolf that managed to close up. The Resources Sector again caught our attention after ongoing measures by Beijing to stem the rout in their equities market helped the Shanghai Composite to rally over +3% following a number of announcements, including the state funds vow to boost stock purchases – a reason to cut any China facing shorts in our opinion.
On December 6th, we held a Webinar “Analysing our seven highest conviction calls”, which we believe has fared pretty well over the last two months, but in today's market, we cannot be complacent, needing to evaluate our positions and views constantly. We strongly recommend subscribers revisit the webinar, which covered the seven stocks and explained some of the Market Matters website's exciting functionality.
Social Media giant Meta Platforms surged after their results beat analysts' expectations, and they announced the company's first-ever quarterly dividend plus a $US50bn share buyback program, i.e. a greater than the entire market cap of Macquarie Group (MQG). Of the “Magnificent Seven,” last week we saw Meta Platforms (META US), NVIDIA (NVDA US), Amazon.com (AMZN US), Alphabet (GOOGL US), and Microsoft (MSFT US) all make fresh all-time highs while Apple Inc (AAPL US) and Tesla (TSLA US) struggled, plus Alphabet (GOOGL US) had reversed lower come Friday, in other words, its become the “Dominant Four”, not traditional broad-based buying but its proving hard to fight the tape at this stage.
The Australian Consumer Staples sector has struggled over recent years, but as MM looks to position portfolios more defensively, it's been on our radar of late, i.e. people have to eat. With interest rates set to fall through 2024/5, inflation under control and supply chain issues in the rearview mirror, the outlook has improved for the sector. The peak cost of living has passed, with spending growth on the horizon, helped by solid immigration, with supermarkets likely to be a key beneficiary.
Overnight saw the Fed hold interest rates steady for the 4th straight meeting while signalling its openness to cut, if not straight away. The Futures markets are now pricing in an implied Fed Funds rate of 3.695% in January 2025, well below today's effective 5.33% rate – we still believe this outlook will prove too dovish as we move through 2024. Jerome Powell shocked many doves when he effectively took a March cut off the table during the press conference, investors need to be patient!
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