The XJO is expected to edge higher on open this morning following a small rebound in the U.S overnight.
Yesterday we continued our descent, edging just below 7,750 before rebounding intraday to retake just under a third of the session’s losses.
Since our highs, our market has now fallen about 10%. This means our market has corrected. A correction is typically seen as a strengthening of broader underlying uptrends. They are not considered the beginning of bear markets, but rather a broader cooling of overheated markets – and our market was certainly overheated. The U.S has practically done the same.
However it is hard to suggest that this correction will lead to the renewal of the broader underlying uptrend. There is very little to be positive about when looking forward. Major economies are heading towards recession, and there are worries surrounding inflation in key markets like the U.S and the Eurozone. Inflation and recession are a deadly combo. Markets are still expensive, with the recent company reporting being less that appealing both locally and in the U.S. The Fed and RBA have both put a halt on interest rate cuts, and gone back to a “wait and see” stance. Trump is expected to continue down a path of isolationism and trade wars. But in fairness, he can seem to change his mind on a dime. Historically he has also used stock markets as a gauge for how successful a president is, often criticizing past president for market falls, and patting himself on the back during rallies in his previous presidency. Considering how quickly markets have tanked since taking the reins, he may offer some relief or at least hesitate in adding further tariffs.
We have sold down a tad further compared to the U.S. Our market’s psyche has likely regressed to the familiar state where we are more than happy to share in U.S losses, but quite reluctant to share in any of their gains. We should be mindful that even if the U.S does have a solid rebound, our market may not be invigorated to do the same. We are a cynical bunch. We would likely need to see some policy change, and rhetoric of moving away from trade isolationism before we see any real bullish movement. Again, this wouldn’t be too surprising. The past month could be Trump saber rattling, and by mid-year it could have all seemed like a nightmare that we have woken from.
For now, we should expect a relief rally soon and some mean reversion – especially considering we have “corrected” now. The downtrend is not sustainable. It will need to shallow out. When is hard to know, and be mindful that a relief rally is not likely to last at this stage.
US Markets
US shares finished mixed overnight, with the SP500 and NASDAQ finishing in the green, while the DOW JONES finished slightly lower. US shares initially traded strongly higher after an inflation reading showed lower than expected consumer prices in February, potentially opening the door for further rate cuts. However, European tariff countermeasures against the US and other upcoming tariffs caused markets to reverse much of their earlier strength. US markets have now corrected (a fall of 10% from the peak), so we will need to see if this discount is enough to entice investors to start buying again. Do keep in mind that most of the US tariffs are expected on the 2nd of April and should these tariffs remain in place for any period of time, US markets will head towards recession. Therefore, should no deals on tariffs be made, markets will likely continue lower.
Six of the eleven sector groups of the SP500 closed higher overnight, with Technology and Communications the best performers. Staples and Healthcare stocks saw the most selling.
Technically, the SP500 has broken below and has now fallen to the level of a technical correction (10% fall from the peak), which comes in around 5,540. Should 5,540 break, the next downside level would be previous support at 5,420. Should the market rebound from here, the previous support at 5,800 – 5,850 is likely to act as resistance.
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