Viewpoint: Bullish
Overnight we saw US stocks experience a choppy session swinging between positive and negative territory with the latter ultimately winning under the weight of external pressures plus nerves ahead of this Thursday’s inflation print. This was the 4th day of declines for US stocks but the downside momentum is slowly waning although weakness in the semiconductors following Biden’s strong stance towards China dragged the tech-based NASDAQ down 1%.
IGO made fresh all-time highs last week which is especially relevant to us because MM has been targeting the $16 area for the last few months however the company has made two very timely acquisitions in the space of just two years, enabling the business to enjoy healthy cashflow while bankrolling its exciting nickel and lithium growth, we had been considering reducing our position into fresh highs but at this stage, as the business evolves we’re inclined to give this position more room.
ALL has corrected almost 40% from its late 2021 high although it remained firm for the last 5/6 months i.e. it’s clearly highly correlated to the tech/growth stocks but it’s a profitable business that clearly has many investors like ourselves perceiving value is on offer below $35. We trimmed our position back from 7% to 5% into July’s strong rally which still feels prudent but eventually, we believe the next 15-20% move is on the upside.
The ASX200 struggled yesterday following a poor night on Wall Street coupled with the S&P500 futures pointing to a very shaky start to the week for US stocks, the local index finally closed down -1.4% with over 90% of stocks closing in the red. As expected the growth stocks bore the brunt of the selling following the strong US Employment data on Friday night as they continue to dance to the bond yields tune i.e. rising bond yields continue to weigh on stocks and in particular the likes of tech.
Copper has basically gone nowhere for 3-months as it continues to rotate around levels reached last July. The industrial metal is swinging around under the pressure of bond yields as investors weigh up the risks that the Fed will plunge the US economy into a painful recession, dragging the world down in its wake. While we believe copper will be higher medium-term the moves over the coming weeks feel like a coin toss.
The tech-based NASDAQ not surprisingly looks very similar to the more broad-based S&P500 although its bond yield-inspired swings have been slightly amplified i.e. the NASDAQ has corrected 36% while the S&P500 has only fallen just 26%. The index ended last week less than 1% above its 2022 swing low which looks set to be broken in the coming days but if we are correct the market should spring back fairly quickly i.e. we expect no real follow-through to the downside.
US stocks now look very likely to make fresh 2022 lows this week but we still believe the market is “looking for a low” and brave buyers will be rewarded through Q4 – we wrote a few times last week that the S&P500 was dragging the chain on the recovery front and new lows shouldn’t be dismissed and alas the observations look on point:
The ASX200 is set to open down around 1% this morning following Friday’s tumble on Wall Street but considering that will still have the local index trading around 300-points above last week’s low we feel it’s a very encouraging picture for investors following the RBA’ surprise 0.25% rate hike – MM believes the local market has found a low and we will be trading comfortably higher around Christmas.
RWC is a supplier of plumbing parts making it dependent on the building industry for growth and profitability, we didn’t mind the Augusts result which showed net sales of $US1.17bn but the market slammed the stock due to a lack of certainty from management around what comes next. The good news for investors is we believe that RWC’s focus on repairs should position it better than many rivals through an economic downturn.
JHX has resided in MM’s Hitlist for a while, the business is highly leveraged to the US housing market which has struggled as interest rates have exploded on the upside but after halving in less than 12 months we believe the stock is now providing excellent value as plenty of bad news is already factored into the share price. – Most importantly August’s earnings report showed nothing which overly concerned us.
