Growth stocks and in particular the tech space are inversely correlated to bond yields, in other words when interest rates rise the likes of Apple & Google struggle. Bond yields have experienced a decent correction over the last month with the rate-sensitive 2 years falling from above 5% to sub 3.6% which has translated to an extension of the period of outperformance by growth stocks over value which commenced in Q4 of 2022 when yields simply slowed their ascent – the US 2 years closed back at 4.1% after the hawkish comments from the Fed on Friday.
On Wednesday, we switched our tech-facing Altium (ALU) position to Ramsay Healthcare (RHC) with the Healthcare operator having sat on our Hitlist over recent weeks. The move reduced our direct/indirect tech exposure back to 13%, still significantly above the market weighting which is less than 4%. We had adopted a bullish and overweight tech position since Q4 of 2023 and this was the first step of MM migrating our Flagship Growth Portfolio to a more in-line market stance now.
Healthcare stocks are in the same growth basket as tech without steroid-like volatility. Over the last 5 years apart from COVID rising bond yields has been the bane of the sector leading to sharp corrections in both 2018 and late 2021. However, we believe central banks are close to a rate pivot which should be supportive of healthcare stocks e.g. as we showed earlier the US 2-year yield has pulled back from over 5% to sub 4% in recent weeks theoretically creating a tailwind for healthcare stocks as a whole.
As we often state the ASX moves far more in tandem with the likes of the UK FTSE as opposed to US indices – it’s not rocket science, similar to the Australian market European indices have a larger market weighting of resource stocks as opposed to tech which now dominates most US indices. On the relative performance front, Europe is winning hands down even as war rages in Ukraine e.g. The UK FTSE is less than 2% below its pre-COVID high just above 7900 compared to the US which is -14.5% below its equivalent milestone.
US stocks experienced a mixed session post-Easter with the Dow closing up +0.3% while the tech-based NASDAQ slipped -0.1% but the standout of the night was the market’s strong recovery from a sharp intraday sell-off e.g. the S&P500 eked out a +0.1% gain after initially falling ~0.8% on fears of another rate hike in May. The read-through being the markets are not keen on another rate hike next month but it’s capable of taking one in its stride.
US stocks experienced a mixed session overnight as Easter approaches with some profit taking hitting tech stocks after their strong advance through 2023 while energy and healthcare names were strong – profitless tech stocks were some of the worst on ground as traders went to cash into the break. Overall it was a “risk off” session which saw bonds rally following weaker than expected economic data – the spread between 3-month bills and 10-year Treasury notes is sitting at its highest in decades, historically a reliable sign that the US economy is headed for a slowdown &/or recession.
The RBA left interest rates unchanged at 3.6% yesterday, it was their first pause after 10 consecutive hikes which has seen the Official Cash Rate soar from 0.1% to 3.6%. Much has been written about Tuesday’s meeting both before and after hence this morning we’ve focused on what MM believes are the salient points of the accompanying RBA minutes and our subsequent interpretation.
Ironically the RBA created this very same “mortgage cliff” by giving banks cheap 3-year money which was simply passed onto borrowers as fixed home loans, all very nice when the cash rate was at 0.1%. In our opinion, the RBA has not played the last few years like a proverbial Stradivarius having provided “free money” for too long after COVID only to compound the error by conveying the incorrect message to borrowers that rates would stay low into 2024 before finally hiking too late as we all saw inflation building across the Australian economy – hopefully, today they will start along the path to market redemption.
The inverse correlation between the ASX200 Tech Sector and 3-year Bond Yield is very clear i.e. when bond yields fall tech stocks rally and vice versa. The local tech stocks looked poised to follow their US peers to fresh 2023 highs although a few local names struggled in 2023 e.g. BrainChip Holdings (BRN) -36%, Megaport (MP1) -35%, and to a lesser extent Life360 (36) +1.7%.
We remain bullish on the Materials sector hence we’re always looking for the best opportunities to exploit gains across these value stocks. Today we have reviewed 2 of the best-performing stocks so far this year and one laggard as we consider the next likely tweaks in our portfolio construction, especially if we see further strength in growth names that is likely to see MM to profit from some overweight positions.
On Wednesday, we switched our tech-facing Altium (ALU) position to Ramsay Healthcare (RHC) with the Healthcare operator having sat on our Hitlist over recent weeks. The move reduced our direct/indirect tech exposure back to 13%, still significantly above the market weighting which is less than 4%. We had adopted a bullish and overweight tech position since Q4 of 2023 and this was the first step of MM migrating our Flagship Growth Portfolio to a more in-line market stance now.
Healthcare stocks are in the same growth basket as tech without steroid-like volatility. Over the last 5 years apart from COVID rising bond yields has been the bane of the sector leading to sharp corrections in both 2018 and late 2021. However, we believe central banks are close to a rate pivot which should be supportive of healthcare stocks e.g. as we showed earlier the US 2-year yield has pulled back from over 5% to sub 4% in recent weeks theoretically creating a tailwind for healthcare stocks as a whole.
As we often state the ASX moves far more in tandem with the likes of the UK FTSE as opposed to US indices – it’s not rocket science, similar to the Australian market European indices have a larger market weighting of resource stocks as opposed to tech which now dominates most US indices. On the relative performance front, Europe is winning hands down even as war rages in Ukraine e.g. The UK FTSE is less than 2% below its pre-COVID high just above 7900 compared to the US which is -14.5% below its equivalent milestone.
US stocks experienced a mixed session post-Easter with the Dow closing up +0.3% while the tech-based NASDAQ slipped -0.1% but the standout of the night was the market’s strong recovery from a sharp intraday sell-off e.g. the S&P500 eked out a +0.1% gain after initially falling ~0.8% on fears of another rate hike in May. The read-through being the markets are not keen on another rate hike next month but it’s capable of taking one in its stride.
US stocks experienced a mixed session overnight as Easter approaches with some profit taking hitting tech stocks after their strong advance through 2023 while energy and healthcare names were strong – profitless tech stocks were some of the worst on ground as traders went to cash into the break. Overall it was a “risk off” session which saw bonds rally following weaker than expected economic data – the spread between 3-month bills and 10-year Treasury notes is sitting at its highest in decades, historically a reliable sign that the US economy is headed for a slowdown &/or recession.
The RBA left interest rates unchanged at 3.6% yesterday, it was their first pause after 10 consecutive hikes which has seen the Official Cash Rate soar from 0.1% to 3.6%. Much has been written about Tuesday’s meeting both before and after hence this morning we’ve focused on what MM believes are the salient points of the accompanying RBA minutes and our subsequent interpretation.
Ironically the RBA created this very same “mortgage cliff” by giving banks cheap 3-year money which was simply passed onto borrowers as fixed home loans, all very nice when the cash rate was at 0.1%. In our opinion, the RBA has not played the last few years like a proverbial Stradivarius having provided “free money” for too long after COVID only to compound the error by conveying the incorrect message to borrowers that rates would stay low into 2024 before finally hiking too late as we all saw inflation building across the Australian economy – hopefully, today they will start along the path to market redemption.
The inverse correlation between the ASX200 Tech Sector and 3-year Bond Yield is very clear i.e. when bond yields fall tech stocks rally and vice versa. The local tech stocks looked poised to follow their US peers to fresh 2023 highs although a few local names struggled in 2023 e.g. BrainChip Holdings (BRN) -36%, Megaport (MP1) -35%, and to a lesser extent Life360 (36) +1.7%.
We remain bullish on the Materials sector hence we’re always looking for the best opportunities to exploit gains across these value stocks. Today we have reviewed 2 of the best-performing stocks so far this year and one laggard as we consider the next likely tweaks in our portfolio construction, especially if we see further strength in growth names that is likely to see MM to profit from some overweight positions.
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