Saturday 31-August-2024: I just read the following from Marcus Padley's ("MarcusToday") Saturday email:

Good Morning Everyone. OK night on Wall St. Tech holds. Financials fly. Resources flounder.

SPI Futures down 18 despite the Dow Jones up 228 to an all-time high, the NASDAQ up 1.13% and the S&P 500 up 1.01%

As you’ll see below the US PCE Price index numbers overnight came in slightly below expectations (good), which was a hurdle crossed as the inflation trajectory continues towards target. Bond yields rose a touch with the 10-year up 4.6bp and the two-year up 2.1bp. The PCE price index numbers the "Inflation has been conquered" assumption that came through from Powell's Jackson Hole speech last weekend. Steady as she goes ahead of the Fed Meeting on September 18. The odds of a 50bp rate cut stayed at 33% overnight, with the odds of at least a 25 basis point cut at 100%. Since Powell’s speech the focus has moved to the jobs numbers rather than the inflation numbers, with the main monthly jobs number out this Friday. That will dictate whether we see a 25 or 50 basis point rate cut on September 18. The US second quarter GDP revision this week along with readings on consumer spending and corporate profits, are pointing towards a soft landing rather than a recession. Everything is shaping up “just right” said Goldilocks.

Much like our banks, US financials are close to all time highs and are taking up the running from technology stocks. JPMorgan just hit an all time high.

Resources failing to perform yet again overnight. BHP and RIO were flat in the US overnight with the iron ore price down 1%. Lithium stocks took another beating whilst uranium stocks mostly held their ground. Lithium and uranium stocks have had a very shabby week. The oil price isn’t helping, it’s been all over the place in the last couple of weeks, down 1.29% overnight with West Texas down 3.1%. Metal prices mostly lower overnight not helped by a 0.38% pop in the US dollar index. In the US dollar goes up, everything priced in US dollars goes down and that includes commodities. Gold down 0.7% but up 2.8% on the month.

It is the end of the month and the ASX 200 has closed at exactly the same level it opened in August. The Dow Jones was up 1.76% in August with the S&P 500 up 2.28%. That is the fourth positive month on the trot. The NASDAQ hasn’t fared quite as well and was up 0.65% in August. The NASDAQ is 5.13% off its high in July. The ASX 200 is within 1% of its all time high. The only markets not close to their highs are the Japanese, Chinese and Korean markets which are down 7.9%, 10.5% and 9.7% from their year highs.

End of excerpt.

My own two cents: Both the US and Australia have financials hitting highs, however their market is tech-dominated, and IT is one of our market's smallest sectors. Resources (mining) is one of our two largest sectors (along with Financials/Banks) but one of their smaller ones. So the US can move to all time highs without Resources firing, but it's harder for the ASX to do it - we need both of our two largest sectors to fire, and at the moment we only have a sub-set of resources firing - gold - while lithium and iron ore companies' share prices are at year lows, or close to it.

Doesn't matter to those who aren't exposed to those companies of course (or those sectors), there's plenty of companies on the ASX heading in the right direction and providing excellent TSRs, but we can't expect our market to always follow the US market because our market is a lot different to theirs. We are known globally as a "Resources Economy" and/or a mining-heavy market, and the US is all about the tech.

It does mean that when we have a tech company that DOES do well and beats market expectations - like Wisetech Global (WTC) - it can really get some people piling in, as we saw during the past fortnight. WTC closed at $94.38 on August 20th, the day before they reported, rose +18.36% on the 21st (the day they reported) to close at $111.71, and they closed yesterday (Aug 30th) at $118.87, being +25.95% above that $94.38 close on the day before they reported (less than a fortnight ago). We don't have many great tech companies, so the few we have can really move when they do well. WTC made an all-time high of $114.99 on the day they reported, then promptly made a new all-time high of $122.72 the next day (on August 22nd), and they're not far below that now.

Our tech options used to be summed up by the WAAAX acronym, however Altium have now been acquired by the Tokyo-based Renesas, and Appen have proven that they should never have been in that list in the first place. Afterpay was the third "A" however they were also acquired, by Block/Square, which we can buy and sell here (SQ2), but they're really not an Aussie company any longer. So we're left with the book-ends - WTC and XRO (Xero) - which is actually a New Zealand company with an ASX listing. XRO is OK, but I consider WTC to be Australia's best tech company. I'm not invested in it currently, but I have been in prior years.

Personally I think the best companies in terms of providing the best total shareholder returns (TSRs) are usually the ones with the best management and really good industry position, and they're often found in unexpected places, like retailers (NCK, ARB), mining and engineering services companies (NWH, LYL, EGL) and gold mining (NST), but you generally need to do the work, and get comfortable with their management teams and their management style - and know their incentives - because those usually drive outcomes. I like management to have plenty of skin in the game as a general rule, because they will tend to act more like business owners than just business managers, and make better capital allocation decisions that are in the longer-term interests of the company, its share price over time, and its shareholders, rather than striving more to hit short term incentive hurdles to increase their own pay packet. Management that own a decent chunk of shares in the company they manage tend to have their own interests much more aligned with those of ordinary retail shareholders, like us. And that tends to drive superior outcomes for us.

In summary, it's fine to follow market movements, but it pays to note the major differences between the various markets and why they will move differently to each other, however it's probably much more important to know what you are personally invested in, and why. Because unless you're invested in index trackers (ETFs) or LICs/LITs that aren't positioned too far away from major indices, then what the markets are doing is mostly irrelevant to what is likely to drive the future value of what you're invested in. So know what you're invested in, and why, is my guiding principle.

"This is only the 2nd day in 62 years the S&P jumped 1% on a day when there were 2 losers for every winner on the NYSE exchange.

The other was the day after Black Monday."

Stock picking can be tough!