Overnight the US markets sold off led by the Tech, Discretionary, and Utility stocks. The Dow Jones closed in the green. Crude pushed back above $60 US and commodities continued to rally. Recovery stocks are staying strong as investors switch out of overbought growth stocks. Expected infrastructure spending around the world is seeing the likes of most commodities rising including most metals and Iron Ore. So, the Miners and Energy stocks should remain in favor in the short term.
Banks are also continuing to climb as the longer-term bond yields rise against short-term yields. This is causing the yield curve to steepen which will help the Banks profitability on loans. We believe that the strong rise in yields has many investors puzzled right now as the move can be confused as fear selling. Rather in this case it seems more that it is a repricing of inflation expectations in the long term.
The move higher in the Australian dollar over the weekend is notable and could see some stocks in the Australian market hold back. In saying that, moves higher in commodities pricing will help the local market.
Otherwise, not much has changed overseas, Bidens go big Fiscal stimulus will likely be passed in the coming weeks, and the FED will remain extremely accommodative for a long time. So even though US markets seem overdone here, with so much cheap money around it is unlikely to see a sizable correction any time soon. Instead, we are seeing a rotation out of overbought growth stocks and into value.
The XJO is expected to edge lower on open this morning, following similar moves from the U.S last night. Considering that we lead the U.S in falls, and the U.S futures are slightly green this morning, we may reverse the losses through our session today.
The natural sell off provides entry opportunities for more bullish trades which may be wiser to look at considering the trend remains up and sentiment remains positive. Things may look exhaustive at the moment, but Powell is addressing congress tomorrow (our time) who should reiterate an accommodative stance to monetary policy which may reinvigorate markets. In addition, the Biden administration should be getting closer to passing further stimulus checks.
All in all things remain positive in the medium to long term, but short term fluctuations are to be expected – especially on the back of a rallying AUD.
US shares closed lower overnight, with tech stocks dragging the major indices. We will see Fed Chair Jerome Powell testify to Congress tomorrow and he is expected to reiterate the Fed’s commitment to monetary stimulus. Talk around the market centred on rising commodity prices and rising bond yields. The strongest moves in US markets came from Oil & Gas stocks, who rose strongly, and Tech shares, who fell strongly.