The winners & losers after recent volatility
The recent volatility in bond yields has caused some sector rotation in equity markets. For the US and Australian equity markets we show in the table below the September-quarter-to-date local currency total returns across the main GICs sectors and industries. We have separated Banks and Real Estate out of Financials to provide a more accurate picture. The sectors are listed in descending order of US total returns, with the Australian equivalents shown next to them. The best performing sector in the US since 30 June has been Information Technology, which continues to go from strength to strength. It was the stand out sector during the US profit reporting season, with companies such as Facebook, Alphabet and Amazon posting strong growth that beat estimates. Even Apple's result was better than expected and the company's share price has risen strongly since recently launching their iPhone 7, helped in part by Samsung's "fire phone" debacle.
Marcus Tuck
Mason Stevens
Banks have been the next best performing sector in the US, with the widening spread between long-term and short-term interest rates being a positive for the sector. The US banks passed the Fed's "stress tests" earlier in the year and are in better shape than most of their European counterparts.
The stronger economic growth outlook implied by the Fed's stated desire to raise interest rates this year would normally be positive for cyclical sectors such as Materials, Industrials and Consumer Discretionary. Those sectors have seen modest gains, but the market is far from convinced about a stronger growth outlook given recent softness in some of the US economic data.
The sectors that have been marked down the most in the US since 30 June are the interest-rate-sensitive ones, such as Telecom Services, Utilities and Real Estate. There has also been some rotation out of the defensive Consumer Staples sector in the US, and the Energy sector has drifted lower with the oil price since 30 June.
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Turning now to the Australian sector returns, the interest-rate-sensitive sectors have been similarly affected. Other sectors have performed a bit differently to their US counterparts due to some compositional or stock-specific differences. For example, the Consumer Staples sector has been far stronger in Australia than in the US since 30 June because of recent developments in the heavy-weight stocks Woolworths (+9.4%) and Wesfarmers (+9.2%), and even stronger returns for Bellamy's (+25.6%), Coca-Cola Amatil (+21.8%) and Treasury Wine Estates (+20.2%).
The Consumer Discretionary sector has also been stronger in Australia, perhaps reflecting the relative strength of the Australian economy and the strong performances of stocks such as News Corp (+20.9%), Aristocrat (+10.9%), Webjet (+48.7%), Ardent Leisure (+41.5%), JB Hi-Fi (+24.7%) and Corporate Travel Management (+26.5%).
Contributed by Mason Stevens: (VIEW LINK)
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Responsible for identifying domestic and international equity investment opportunities. 25 years of financial markets experience as an equity strategist, economist, analyst, portfolio manager and consultant.
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Marcus Tuck
Head of Equities
Mason Stevens
Responsible for identifying domestic and international equity investment opportunities. 25 years of financial markets experience as an equity strategist, economist, analyst, portfolio manager and consultant.
Expertise
Marcus Tuck
Head of Equities
Mason Stevens
Responsible for identifying domestic and international equity investment opportunities. 25 years of financial markets experience as an equity strategist, economist, analyst, portfolio manager and consultant.
Expertise
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