04 December 20
Nuix hits the boards
04 December 20
Nuix hits the boards
04 December 20
Iron ore surges, are we long enough? (A2M, TWE, FMG, RIO, BHP, VALE US)
03 December 20
Iron ore takes flight (MQG)
03 December 20
Coal is threatening to rise like a phoenix (CRM US, WHC, NHC, YAL)
02 December 20
ASX holds steady as Sydney returns to the dancefloor, GDP ahead of expectations (NWH, Z1P)
02 December 20
Income Note: The future of wealth management, according to IOOF (IFL, CLW, IGL, SIQ)
02 December 20
Overseas Wednesday – International Equities & Global Macro Portfolio (BIN, TWE, TTD US, ZM US, GOOGL US, WFC US, SVXY US, VGK US)
01 December 20
ASX rallies, lots of Aussie’s buying Pizza & KFC, IOOF outlines future of wealth management (CKF, DMP, IFL, SFR, ABY)
01 December 20
3 “elastic bands” MM considered in the last 24-hours (CBA, CGC, TWE, MFG, PPT, RHC, CSL)
30 November 20
ASX books best month in 30 years, Treasury Wines (TWE) hit hard, IT stocks see some love again
Global equities again rallied strongly last week after markets were greeted with the heart-warming news that a vaccine for COVID-19 was looking closer than we all dared to hope – fingers crossed that Pfizer are the first of a number companies who can make significant headway towards defeating the pandemic. We might be sitting pretty in Australia almost feeling like the virus was a bad speedbump in our lives during 2020 but it’s a very different story elsewhere, the US for example scaled another fresh record for new daily infections at the end of last week, a staggering +160,000 cases, the numbers held firmly above 100,000 every day this month.
Morale is understandably very low in a number of major nations in the Northern Hemisphere hence it should come as no surprise that equities rallied sharply on the news from Pfizer, an effective vaccine will fuel a global economic recovery which is very supportive of equities until we eventually see signs that central banks might be considering tightening monetary policy. The MSCI World Index actually made fresh all-time highs last week vindicating MM’s bullish stance towards stocks, both locally and internationally – our “best guess” at this stage is equities will continue to rally well into Q1 of 2021 enjoying the combined positive tailwinds from the perfect US election result for risk assets, ongoing huge government & central bank stimulus and the simple relief that we are set to move into a post-COVID environment.
As we’ve discussed a few times through the week our main focus is around what stocks / sectors to be overweight as opposed to whether MM wants to be long stocks, or passively sitting in more defensive assets like cash. Our core view moving forward is showing signs of rising from the ashes i.e. MM remains committed to our reflation / higher bond yield outlook through 2021 hence we believe value stocks will outperform growth next year.
Our initial target for the MSCI World Index shown below is ~2600, or another 3% higher.
MSCI World Index Chart
The ASX200 has already rallied +8% this month with further gains looking set to be enjoyed on Monday morning after the Dows 400-point rally on Friday. The strong momentum and relatively broad based nature of the rally locally over the last 2-weeks has led to us revise our short-term view for local stocks, especially from a risk / reward perspective:
Another few week’s strong upside well above 6500 feels a strong possibility hence MM is unlikely to increase cash levels short-term, we want to give this rally room to breathe. Our main focus will be on tweaking our portfolios at opportune times ensuring they are weighted towards stocks / sectors which we believe will outperform over the next 6-months. For subscribers who don’t believe we are in a post-pandemic macro phase which is creating new stars of the show, consider the following: over the last month National Australia Bank (NAB) is +10% and Flight Centre (FLT) +18% while Ansell (ANN) and Fisher & Paykel Healthcare (FPH) are both down.
MM remains bullish the ASX200 with stops under 6240 – less than 3% away.
ASX200 Index Chart
Australia’s RBA cut the official interest rate to 0.1% on Melbourne Cup Day and started a $100bn QE Program where they committed to buy 5 and 10-year government bonds over the next 6-months plus also saying they would buy “whatever quantity” was required to maintain their 3-year bond target of 0.1%. This huge statement / undertaking has sent home loans tumbling, on the weekend I noticed St George offering 4-years fixed at 1.94% and I’m sure there are even better offers around for the bargain hunters.
Last week we saw Australian 10-year bond yields touch 1% but just like the 2 previous times this year they backed off which is no surprise considering the RBA are sitting in the market on the bid (buying bonds pushes yields lower). We remain committed to our view that bond yields are “looking for a low” but it feels like a bottle of coke being incessantly shaken with the RBA holding the lid firmly in place, when they ultimately do release their grip we could be at ~1.5% in just a few weeks, of course when is the million dollar question.
Equities remain extremely attractive compared to term deposits.
Australian 10-year Bond Yield Chart
This week I’ve looked at 3 nuances unfolding within markets that caught my attention over the weekend, all of which are influencing our logic / thinking across our respective portfolio constructions.
1 The tech-based NASDAQ looks tired but not out
Since the encouraging news from Pfizer the markets witnessed the distinct underperformance by the big US tech stocks, the very same stocks like Apple (AAPL US) and Microsoft (MSFT US) that have helped drag most US indices to fresh all-time highs post the virus breakout in March. The chart below illustrates that the US small Cap Russell 2000 Index punched through to fresh all-time highs on the vaccine news whereas tech struggled and is still 4% below its equivalent milestone scaled in early September. Reiterating our thoughts following the Pfizer news:
1 We remain bullish equities and still believe the NASDAQ will break above Septembers high before Christmas.
2 However overall we do believe the best performance will be achieved outside of tech, at least for a few months – remember in Octobers Bank of America’s Fund Manager Survey, before the macro landscape improved dramatically, cash was slightly elevated to 4.4% with the majority believing tech would remain the market leader next year. Tech has performed amazingly post the GFC but we feel 2021 might be one year too many with one of the main reasons being too many people are complacently positioned the same way, from momentum traders to “mums & dads”.
MM remains long and bullish the tech sector, but we do feel overall it will underperform into 2021.
US NASDAQ-100 & Russell 2000 indices Chart
2 MM prefers Europe over the US into 2021
We’ve mentioned previously that MM has a preference for Europe over the US from a risk / reward perspective , a very contrarian opinion compared to the last 5-years shown below but simply we believe it’s going to be far easier for Europe to rally 20% from current levels than the US. Obviously, the trickier task is to identify which stocks to buy / avoid in the respective indices. This like point 1 is an anticipation of some reversion of the last decade over the performance front.
MM is bullish both Europe and the US but with a definite preference for the former.
S&P500 & EUROSTOXX 50 Indices Chart
3 A vaccine is the new stock driver
Equities surged last week following the Pfizer announcement, we could be heading towards a post pandemic world as early as 2021, not surprisingly stocks reacted accordingly. Ultimately most people might end up taking a different vaccine but the situation is clearly headed in the right direction with MM’s “recovery positions” rewarding us nicely over the week e.g. Beach Petroleum (BPT) +24% and Star Entertainment (SGR) +5.4%.
Undoubtedly there will be some bumps in the road but moving into 2021, but we have a general preference for stocks who are positioned to benefit from a global re-opening economy, the Energy Sector looks particularly attractive even after last weeks ”pop”.
MM is bullish Oil Search initially targeting another 20% upside.
Oil Search (OSH) Chart
Actions MM is considering across our portfolios.
No great change as the markets moving as expected albeit in an accelerated manner, I know a number of subscribers were almost spooked by the number of alerts on Tuesday but when MM believes markets are around / at major points of inflection it’s the time for action - especially when its been on our radar for weeks with the switches flagged accordingly. After last week by definition the number of portfolios tweaks we are considering have reduced somewhat across our 4 MM Portfolios but a couple remain interesting moving into Christmas.
1 MM Growth Portfolio
After the actions last week MM will be far fussier moving forward considering this portfolio is far more structured towards our macro view into 2021.
However, we see it as no reason to be inactive if an opportunity presents itself, we have 2 switches on our radar at present:
1 Switch from Vocus (VOC) to Telstra (TLS)
Telstra (TLS) rallied almost 12% last week, trumping our own position in Vocus (VOC) which still performed strongly advancing 7%. Last week’s TLS investor day was all about restructuring the business into 3 companies with the key benefit being flexibility as TLS looks to sell-off infrastructure assets. Following years of earnings slowly being eroded as the NBN took users off their network of cable they delivered an initial FY23 EBITDA target of $7.5b-$8b, marginally ahead of the markets $7.48b average of analysts.
At current levels we prefer the higher Beta VOC but if the price differential stretches out towards ~$1.35 it will be tempting to move towards TLS, especially with the 5% fully franked dividend on offer. We do own Telstra in the Income Portfolio.
Vocus v Telstra (TLS) Chart
2 Magellan Financial (MFG)
We now expect tech facing MFG to underperform into 2021 however rather than simply switch into a new recovery stock we are considering “topping up” a couple of existing holdings – Ramsay Healthcare (RHC), Monadelphous (MND) and Beach Petroleum (BPT) all of which look extremely well positioned in 2021.
Magellan Financial (MFG) Chart
2 Income Portfolio
The Income Portfolio remains well ahead of its benchmark for the financial year and last week we simply followed our previously outlined plan to sell MQGPD & increase our holdings in the banks through CBA & NAB i.e. migrating up the risk curve slightly in line with our bullish outlook for the market and especially the banks. We enjoyed the strong rally in Telstra (TLS) and we’re also more comfortable in our IOOF (IFL) position after it bounced from the $3 region. We even saw our problematic position in Ive Group (IGL) rally!
National Australia Bank (NAB) Chart
3 International Portfolio
Unfortunately we’ve been a touch fussy decreasing our tech exposure to increase banking / resources but even though the Pfizer news has reduced the appeal slightly our view is the catalyst is now in play for a major move on the relative performance front hence we are still looking to migrate the current International Portfolio in part away from tech.
Sell / reduce:
The picture in large cap US tech is very similar across most stocks, we are considering taking profit on one at this stage next week, similar to Wednesdays International Report:
1 – Google Alphabet (GOOGL US) US) looks bullish but we believe taking the +40% profit and reallocating elsewhere makes sense considering our macro view.
Google Alphabet (GOOGL US) Chart
Buy / increase:
1 Wells Fargo (WFC US) – a brave call but we can see WFC recovering ~40% into Christmas making it an exciting risk / reward aggressive play.
Wells Fargo (WFC) Chart
2 Alibaba (BABA US) – another brave (hopefully not stupid!) call, the Chinese government have flexed their muscle sending BABA down almost 20%, we believe this is a great buying opportunity over the medium term.
Alibaba (BABA US) Chart
4 Global Macro ETF Portfolio
One small tweak last week as we took our cash position down to zero through buying the Vanguard FTSE Europe ETF with a small 4% allocation (it’s all we had!).
1 – We are looking to increase our VGK position from 4% to 10%.
Vanguard FTSE Europe ETF (VGK US) Chart
2 – Our positions are a touch one directional and at this stage were comfortable taking a ~30% profit on our Short VIX position around $US40.50, or 3% higher.
ProShares Short VIX Short-term Futures ETF (SVXY US) Chart
3 – In line with earlier comments around the NASDAQ we are looking to take profit on our Invesco QQQ Trust (QQQ US) into fresh highs, our ideal level is ~$US310.
Invesco QQQ Trust (QQQ US) Chart
Equities are breaking out to the upside; we remain bullish into 2021.
MM is still looking to tweak our portfolios away from tech towards banks / resources but after last week’s actions we will be selective.
Our positions as of Friday. All past activity can also be viewed on the website through this link.
Weekend Chart Pack
The weekend report includes a vast number of charts covering both domestic and international markets, including stock, indices, interest rates, currencies, sectors and more. This is the engine room of our weekend analysis. We encourage subscribers to utilise this resource which is available by clicking below.
Have a great Sunday!
James & the Market Matters Team
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