as you can see above, our ASX does not follow Wall St, so even when the going remains good in US, its been rather bad across our favourite ASX stocks- the only one with positive weekly and monthly returns is CBA, our "NVIDIA"(and CSL only just) and even that is likely coming to an end soon.
..our techs not following Nasdaq, favourite haunts ZIP, WA1, BOE rally suffered dislocation.
..we are already in correction territory for stocks that are commonly traded and invested in, even though ASX200 is flat.
..risk reward is unfavourable now to be in any ASX stocks. Better to wait out. Wall Street’s record rally built on ‘shaky foundations’ Alex GluyasMarkets reporter
Updated Jun 24, 2024 – 12.05pm,first published at 11.11am
As investors cheered the S&P 500 index forging another record last week, market pundits are warning of cracks starting to emerge in the world’s most watched sharemarket.
The blistering rally, which has pushed the US benchmark up more than 30 per cent from its October low, has faced little resistance, with just one hefty pullback during that period – a 5.4 per cent drop in April – while the other 12 market sell-offs have been less than 2 per cent.
The historic streak has largely been fuelled by what is being labelled as the “Magnificent 5” – Microsoft, Nvidia, Alphabet, Amazon and Meta – which have accounted for 60 per cent of the S&P 500’s gain this year, and therefore will largely dictate the sustainability of Wall Street’s rally.
“The fact remains the market is now all-in on the rally in artificial intelligence-related names and big tech, and given the lack of clear immediate risk, the path of least resistance is for higher equity index levels,” said Chris Weston, head of research at Melbourne brokerage firm Pepperstone Group.
But “all is not so rosy under the hood,” he warned. “Index market breadth has been poor, with participation underwhelming, suggesting the rally has been built on a shaky foundation.”
It was no coincidence that in the same week that the S&P 500 topped 5500 points for the first time, US chipmaker Nvidia claimed the title as the world’s most valuable company, marking the culmination of an AI-powered rally that is showing little signs of slowing down.
But the increasing concentration of the US sharemarket recently is starting to worry equity strategists. Alarm bells
While much of the bull market since October 2023 has coincided with solid gains in the Equal-Weighted S&P 500 Index (which allocates a fixed weight for every company), a significant divergence over the past month has started to emerge as the mega-cap tech stocks charged ahead.
The S&P 500 has gained 9.1 per cent since the start of May, while the Equal-Weighted equivalent has risen just 2.6 per cent.
“The narrowing gains at a time of poor valuations, elevated levels of investor sentiment and technically overbought conditions warn that we could see another correction ahead, possibly in the softer seasonal months of August and September,” said Shane Oliver, head of investment strategy at AMP.
Indeed, strategists point out that there are a number of red flags which could exacerbate the severity of a sell-off.
This month’s Bank of America global survey revealed that cash levels of fund managers are sitting at just 4 per cent, the lowest since 2021, which means there isn’t a pile of money waiting on the sidelines to cushion a sharemarket decline.
That forms part of a broader theme of traders removing portfolio hedges – which are put in place to protect investments – given they cost money and lower absolute returns when equity markets are powering higher.
“We can make a list of factors that could cause a sustained sell-off, but what’s equally important is how the market is positioned, as this could lead to the rats jumping ship all at once,” Mr Weston said.
Even so, strategists believe the match to ignite a broader sell-off would require a meaningful deterioration in economic data. Specifically, the US labour market cooling quicker than expected, consumption metrics pulling back rapidly, and business and consumer confidence plummeting.
While those signs of a recession would almost certainly hit corporate earnings, it would take months to fully evolve.
And even then, markets can rely on the so-called “Fed put”, where the US Federal Reserve can cut interest rates and utilise its balance sheet to stabilise the world’s largest economy and financial markets. Election risk
Beyond the macroeconomic and technical risks, geopolitical tensions are also simmering as traders eye the French election next month.
And while the outcome could inflict volatility across global markets, it is unlikely to trigger a correction in Wall Street’s tech giants which could actually benefit from an investor rotation out of European assets.
The US presidential election in November also presents a risk to Wall Street, particularly given betting markets and recent polls suggest Donald Trump will return to the White House.
That likely means higher tariffs, slower immigration and lower taxes, which together increase the prospects of trade wars and inflation risks.
Despite the risks, Wall Street’s money managers are doubling down on their bets that the tech sector will propel the sharemarket higher.
BlackRock last week reiterated its “overweight” exposure to the technology and AI theme, noting that the sector’s outperformance is being supported by robust earnings, which means the rally has further to run.
“Healthy corporate balance sheets and earnings momentum support our pro-risk view,” said Jean Boivin, head of BlackRock Investment Institute.
The “Magnificent 5” reported earnings growth of 84 per cent in the first quarter compared with the prior year, smashing the 5 per cent growth posted by the typical S&P 500 stock.
