The bulls re-emerged today as the threat of a higher CPI result in the US came and went. The result was actually higher than mkt expectations but as we suggested yesterday afternoon, this morning, and on many notes in the past, when the mkt thinks a certain way, then the opposite reaction generally plays out.
It seems the reflation trade is alive and well and it was those reflation stocks that did best in today’s trade. Resources led the +1.16% bounce that played out with the ASX putting on 68pts to close at 5909 – our 5950 shorter term target is now very much in play. We used the recent weakness as a buying opportunity which is always a challenge at the time however, we’re not resting on our laurels.
The recent mkt volatility highlights some big imbalances in the system which will come to bare in a more aggressive way at some stage in the future - we think at some stage this year, however the flush out that occurred in early Feb has most likely rattled the weak longs in the mkt for now.
Perhaps we get a more stable mkt now with defensive yield investors buying more suitable assets like bonds, that are returning more palatable yields, while equity investors can focus on allocating capital into companies that will do well in this type of environment.
Anyway, one hot day certainly doesn’t make a summer, and we’re now putting our buyers hat in the cupboard and dusting off our ‘sellers get up’. We continue to think that 2018 will be a volatile year, however in that environment, buying in the face of extreme pessimism and selling when the mkt regains a level of comfort will be key. Doing exactly what the crowd isn’t, what feels totally uncomfortable may yield the best results this year. .
Reporting continued to dominate today and collectively, the results were reasonably weak – yet the mkt still rallied. Today markets focussed on the macro, rather than the micro and stocks rallied. As suggested earlier, the material stocks did best, Fortescue (FMG) up an impressive 5.69% to close at $5.39 while BHP and RIO were both in a purple patch – adding 4.56% and 4.06% respectively.
ASX 200 Intra-Day Chart ASX 200 Daily Chart
A v’short report this afternoon – we’ll make up for it tomorrow with better coverage of results.
REPORTING THIS WEEK
Have a great night
James & the Market Matters Team
The above is an extract from the Market Matters Afternoon Report. To gain access to all reports for the next 14 days, including our picks into the market drop, CLICK HERE
James is a Portfolio Manager within Shaw and Partners heading up a team that manages direct equity and option portfolios. He is also the Primary Contributor to Market Matters, a daily investment report that offers real market insight.