Technology stocks drove a rebound on Thursday while financials weakened over concerns for the sector as well as lower yields.
United States
Financials remained under pressure on Thursday despite remarks from Treasury Secretary Janet Yellen that policymakers remained ready for any additional deposit support, walking back her comments that rattled markets on Wednesday. The S&P500 rose 0.3% paring larger initial gains, with only two sectors driving the index higher, technology 1.65% and communications 1.83% while all other sectors were lower in weak breadth as 63% of stocks finished lower. The Nasdaq Composite rose 1.01% with the Dow Jones 0.23% higher while the economically sensitive Russell 2000 declined 0.41% with the VIX 1.57% higher at 22.61. Shares in Block (SQ) slumped 14.82% after short seller Hindenburg Research released a report alleging the company’s Cash App was helping facilitate scammers take advantage of government stimulus programs during the COVID pandemic. The chart below highlights the ratio between growth and value indices calculated for US stocks by MSCI, after strong outperformance by value stocks in 2023, we can now begin to see that growth stocks are once again outperforming on a relative basis given easing rate expectations.
MSCI USA Growth/Value
In economic data, initial jobless claims for the week ending March 18th were slightly better than forecast at 191k vs 197k expected and little changed from the prior week. Elsewhere the final reading of building permits in February increased to 1.55m from 1.339m in January, with new home sales up 1.1% over the month compared to 1.8% in January. The 2-year Treasury yield was lower by 11.2 basis points to 3.825% as expectations grow that the Fed has reached or is near peak interest rates, with cuts likely to follow later in the year based on swaps and futures pricing.
2 Year Yield vs Fed Funds Rate
Europe
European investors also moved into growth sectors such as technology and away from financials on Thursday with expectations of a peak in rates and the potential for easier monetary policy going forward supporting long duration stocks. In such a scenario, financials would once again see lower margins as rates decline in addition to weakening sentiment on the sector following the collapse of several banks. The Euro Stoxx 600 finished 0.21% lower along with the DAX -0.04% and FTSE100 -0.89% while the CAC was 0.11% higher. In economic data, Eurozone consumer confidence for March missed expectations for a modest improvement to -18.3 instead weakening to -19.2 and the Bank of England raised interest rates by 0.25% as widely expected taking the benchmark rate to 4.25%. Policymakers left open the potential for further rate increases should inflation persist despite turmoil in the banking sector noting “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required”. Pricing from interest rate swaps shows investors expect a further 0.25-0.5% increase in rates over the coming months, before likely needing to ease policy towards the end of the year and early 2024.
*Note: These prices are based on futures and/or CFD pricing and may therefore differ slightly from spot pricing.
Australia
The ASX is expected to open lower this morning with ASX200 futures down 0.56% or 39 points to 6,950. The index weakened 0.67% on Thursday with most sectors negative with materials -1.13% and financials -0.77% weighing the most. Shares in Brickworks rose 3.13% after posting its 47th consecutive year of dividend increases, raising its interim dividend by 5% to $0.23.Shares in investment company Washington H Soul Pattinson (SOL) rose 1.3% after also increasing its interim dividend to $0.36, or a 24% increase as half-year profit jumped 167% to $453m. Lithium stocks came under pressure on Thursday as benchmark lithium prices weakened with Lake Resources (LKE) down 8.1% along with Liontown Resources (LTR) -5.6%, Mineral Resources (MIN) -2.9 % and Pilbara Minerals (PLS) -4.7%.
Lithium Carbonate
Commodities
Oil prices were lower overnight with both WTI and Brent crude down 2.02% and 1.62% respectively to US$69.47 and US$75.45 a barrel. Iron ore futures in Singapore weakened 1.7% on Thursday and are 0.27% lower this morning at US$117.9 while copper rose 0.97%. Gold continues its march towards US$2,000 rising 1.18% overnight to US$1,993 an oz, with silver also 0.5% higher along with Bitcoin 3.43% to US$28,333.
Economic Data
Friday 24th March
Australian PMI (MoM Mar) 09:00
UK Retail Sales (YoY Feb) 18:00
Eurozone PMI (MoM Mar) 20:00
US Durable Goods Orders (MoM Feb) 23:30
Saturday 25th March
Fed Bullard Speech 00:30
US PMI (MoM Mar) 00:45
This article was written by James Woods, Portfolio Manager, Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3632.
