Viewpoint: Bullish
Every time US stocks adjust to higher bond yields Jerome Powell reminds the market that rates can go even higher than many think, his testimony overnight sent the US 2 years above 5% and 10 years up towards 4%. Overall the news from the Fed wasn’t surprising just a reality check i.e. a simple reminder that the outlook of “higher for longer” should be taken seriously by markets.
US stocks struggled to hold onto early gains overnight following a reversal higher by bond yields but encouragingly the NASDAQ still edged higher even as US 2-year yields traded back towards 4.9% bringing with them increased economic risks of a recession. The S&P500 was up almost 1% early in the session before ending up just +0.1%.
Mineral sands operator ILU traded ex-dividend 20c fully franked yesterday yet it only slipped 31c, a solid result in our opinion considering the sell-off in China-facing resource stocks.
REA also traded ex-dividend 75c fully franked yesterday but the stock only edged down 9c. This Real Estate listings company delivered a decent result in a very tough environment last month but they guided towards ongoing headwinds until next year.
Printed circuit board design software provider ALU traded ex-dividend 25c part franked yesterday yet it still managed to rally 47c outperforming the overall market in the process. We remain bullish even after the company’s average earnings report last month.
The ASX200 edged marginally lower last week as broad-based selling was offset by strength in the resources i.e. it’s not often that the ASX can shrug off a bad week for the banks – we can see this relative performance reversing throughout the coming week, especially after Chinas modest 5% growth target
US stocks rallied overnight with the S&P500 finishing up +0.8%, even as bond yields nudged ever higher i.e. the market is gaining strength in our opinion when the S&P500 can make reasonable gains even when the US 2-year yields test 4.95%. Equities appeared to gain in confidence following comments from Atlanta Fed member Raphael Bostic that the central bank could be in a position to pause rate hikes sometime this summer.
We have enjoyed a profitable journey with SFR over the last 4 months and as the stock rallies back over $6, another chapter looks like it’s unfolding. Importantly we like copper medium to longer term but with the very real risks of a recession looming through 2023/4, we are prepared to take profit if the stock gets too frothy.
