Technology stocks again fared poorly overnight, with high growth stocks continuing to be sold off after Janet Yellen’s comments on Interest rates and a global minimum tax. The Nasdaq closed 0.37% lower, while the S&P 500 and Dow Jones indices both closed slightly higher, which was enough for the Dow to set a fresh record high.
The strong Dow Jones indicates that it is again value stocks that are favoured as the world starts to look beyond the virus period. Strong manufacturing data and demand for raw materials is certainly indicative of this and it was another strong night for industrial metals overnight, with copper and iron ore almost at all time high levels.
Plenty continue to be worried about the prospect of a May pullback, with the concerns currently exacerbated by the strong bullish run that markets have enjoyed. May is sometimes a weaker month, although that is not always the case. We will have to continue to monitor technical signals for signs of a pullback and be quick in adjusting positions if key levels of support break; until that happens, we have to assume that the upwards movement will continue.
Australian stocks showed incredible resilience yesterday in the face of US selling. We tested our post virus high resistance levels (7,100 on the XJO) and finished right on it. That does go to show that momentum remains positive and that our value heavy index can weather some US tech selling. Our bank reports are also continuing, with a strong report from WBC on Monday followed by a weak report from ANZ yesterday. We will see NAB report today, followed by MQG tomorrow.
The XJO is expected to fall on open this morning, following a volatile night of trading in the U.S. Meek falls have typically reacted to the key level at 7000, so unless U.S futures move hard into the red, our market has a good chance of being buoyed.
With the U.S reversing much of its losses by close, our market should interpret that well; strength remains, and any kneejerk will be bought straight back up.
Once again, we are tracking sideward and consolidating. How long this will last is hard to know, but the range between 7000 and 7100 is particularly tight, so we wouldn’t expect it to last much longer. The trend remains bullish so we would typically expect the consolidation to lead to further bullish movement in the medium term – though this remains uncertain as commentators are remarking about how stretched things look.
US shares were mixed overnight. We saw the Dow Jones industrial average record a fresh all-time high, while the S&P 500 was flat, and the tech-heavy NASDAQ fell. US tech stocks continue to underperform in the short-term as worries about longer term interest rate rises drag down the valuations of expensive growth stocks. In overnight US economic data, services PMIs came in largely better than expected, and there was a strong draw-down in US oil inventories.
Technology stocks continue to perform poorly in the short-term, though the tech indices are approaching their uptrend lines. Utilities and Real Estate stocks also performed poorly during the session. Oil & Gas and Materials stocks were the strongest performers overnight.