07-May-2024: One reason why we tend to underperform the US Market is that their market is tech (IT) dominant, along with Financials and Health Care, and to a lesser extent Consumer Discretionary and Consumer Services companies, wheras our Aussie market is heavily skewed to Banks and Resources (Mining):

The US Market:

The USA's S&P 500:

Aug 2016, above. S&P 500 (=500 largest US companies). Source: https://www.bespokepremium.com/interactive/posts/think-big-blog/historical-sp-500-sector-weightings

June 2022, below. S&P 500 again (500 companies). IT as a sector now 28.7% of the S&P 500 - up from 20.7% in 6 years. Source: https://community.ig.com/blogs/entry/1841-when-can-sp-500-volatility-break-a-stock-diversification-strategy-analyzing-the-vix/

Dow Jones Industrial Average (Dow Jones):

May 2021, above. DOW JONES Industrial Average (=Only 30 large companies, price weighted, not market cap weighted). Source: https://www.forex.com/en/news-and-analysis/dow-jones-trading-guide/

Nasdaq Composite Index (Nasdaq):

December 2023, above. Nasdaq Composite. Around 3,500 companies, worth around $22.4 Trillion in total. Source: https://www.nasdaq.com/articles/nasdaq-composite-benchmark-for-the-21st-century

And now "Our" market:

S&P ASX All Ordinaries (All Ords):

Above, Data updated: 1 March 2019, The S&P ASX All Ords Index = the largest 500 companies on the ASX, the All Ords Index is weight-adjusted by market capitalisation.

S&P ASX 200:

Above, Data updated: 1 March 2019, the S&P ASX 200 (200 largest companies). Source: https://www.asx200list.com/

The S&P ASX 50:

Above, Data updated: 1 March 2019, the S&P ASX 50 (50 largest companies). Source: https://www.asx50list.com/

Together the financial sector and the materials sector make up around 47.1% of our All Ords, 48.6% of our ASX 200, 55.8% of our ASX 50, and 66.3% of our ASX20 index (shown below)

So when tech is heading north, we don't get that tailwind because the IT sector represents less than 4% of our All Ords and ASX200, less than 1% of our ASX50, and zero % of our ASX20:

The S&P ASX 20:

For our market to fire we need our banks to be going up and our materials sector to be rising also. And that appears to be happening now, a bit... if today's 12-month high list is anything to go by:

That's a crazy bowl of colourful spaghetti, but what it suggests to me - based on a small sample size of a single day - is:

1. Some banks are doing OK - Westpac made a 52-week high today, but NAB was down (see below), and NAB was the only ASX20 company that was down, so mixed...;
2. However the 4 big banks are all close to 52-week highs, ANZ has come off a bit but the others aren't far away from their recent highs;
3. Plenty of materials companies making new 52-week highs, especially Uranium, Copper and Gold companies (some today, some during recent weeks);
4. The only lithium stocks that were making 12-month highs were MIN and WES who generate the majority of their earnings in other sectors or other metals (iron ore) in the case of MIN;
5. Pure play lithium companies were mostly down making 52-week lows, as were a number of smaller companies who are trying to be in lithium as well as other metals, for instance the two Uranium explorer/developer companies making 12-month lows (AS2 & PIM) are both also into lithium and PIM also has Mineral Sands and Rare Earth Elements(REE)/Rare Earth Oxides(REO) projects;
6. Small mining companies with their fingers in a heap of different pies are struggling;
7. Diamonds aren't always forever;
8. Metals Recycling can be a tough gig;
9. Nickel and other base metals - other than copper - are still on the nose with investors at this point it seems (other than one nickel company, NIC);
10. Iron Ore is mixed, as FMG, BHP & RIO don't feature above however MIN, M4M and ADY have made new 12-month highs today, while BCK has made a 12-month low;
11. REEs/REOs/Tungsten/Molybdenum/Vanadium not sexy (yet) - small explorer developers in these areas continue to struggle; and
12. Gold is mixed. Some small explorers/developers are struggling, others are making 12-month highs; those who have one foot in gold and another foot in lithium or something else are struggling, and when they have a third foot in something different again they are being rightfully considered to be NQR.

Overall - a positive day on the market:

So we have some strength in our market, but for it to push on and keep making new all time highs we really need our two largest sectors to both be firing, or at least one of them, and it's harder when Banks have to do all the heavy lifting for Materials, or vice versa. Banks are doing OK, but Materials is very mixed I reckon. Once we get some strength in most metal prices and mining gets some love across most metals and minerals, I reckon she'll be apples. Until then, while we will continue to loosely track the US market, we won't be as strong, because we don't have the same companies, or even the same sectors that they do, proportionally, as explained at the top of this post, so as long as IT stays strong and metals and mining stay weak or mixed, the US will make new highs and higher highs more often than we will. It's just the way things are.

Some of us don't care much what the market does, as long as the companies we are invested in do well, however sometimes negative sentiment can be persistent and there are times when it can take a strong and rising market to get some undervalued stocks positively re-rated by the market. It's like they need permission to be optimistic again. Anyway, I tend to find that stock (company) selection is the most important thing to get right, then it helps if the market is strong, rising, and people are bullish. Prices are then more likely to resemble underlying intrinsic value, or perhaps rise above intrinsic value allowing us to rotate funds into other opportunities. You can still make money in a bear market, just not as much, and not as often.

And then there's patchy, slowly-grinding-higher markets (sound familiar?) where the side of the bed that Mr. Market wakes up on each morning is almost a coin flip. Two steps forward, three steps backwards, one step forward, two steps backwards, three steps forwards, hopefully more forwards than backwards over the months and years, climbing the endless wall of worries and slipping down every now and then. It's probably the Greenore talking now, but I miss the bull markets of the good ol' days, and I guess I've been looking at what we'd need for that to happen again.

Positive sentiment that stays positive for longer than a day would be a good start, and those days are likely behind us now because there's always something to worry about either today or tomorrow, usually just around the corner, out of sight, and sometimes even out of mind, until it's right there. However, I reckon if we can maintain a strong financial sector here in Australia and we get a resources boom again, or perhaps just a resources recovery, that might give our market a bit of a nudge in the right direction and we might be able to string a few good weeks together for a change.

In the meantime, I'll take days like today anyway. Lots of green on the screen is good. It's just that I've always got it in the back of my head that tomorrow is probably going to be another red day; knowing that the down days usually follow the up days takes a fair bit of shine off the up days. I probably need another holiday... Too much short term focus, not enough relaxing and checking in every week or three.