...and then suddenly it came - the bulls pulled a late arvo rally in an ever surprising market.
Frothy market’s two biggest winners make up for all the year’s losers
On a day when the market hits another record high, it’s worth thinking about which stocks are driving it. Two have done this year’s heavy lifting.
Nov 25, 2024 – 2.57pm
Just two stocks’ gains can cover the losses from all 88 losers in the S&P/ASX 200 this year.
If you’re looking for a reason why the ASX 200 is recording fresh highs every other day, it is these two stocks and their mates.
The big four have done more for the market this year than ever before. David Rowe
And if you want proof that the sharemarket has detached from economic reality, it is also the same two stocks and their mates.
The two stocks, Commonwealth Bank of Australia and Westpac Banking Corp, have added a staggering 437 points to the benchmark ASX 200 this year, according to Bloomberg data. That’s about the same as all the detractors this year – and there are 88 of them including big names like BHP, Woolworths and Fortescue Metals.
The two banks’ contribution is even more staggering because it represents 5 per cent of the index’s value (in just one year) – an index that started life at 3133.3 points in April 2000 and ticks up about 8 per cent a year, on average.
So, the two banks have just about done a year’s hard work for the Australian market between them.
If you add in CommBank and Westpac’s two mates – National Australia Bank and ANZ – you get about another 200 points of gains. NAB and ANZ are No.3 and No.4 on this year’s gainers list (by points). The next biggest player in Australian banking, Macquarie Group, is No.6.
If you take these five banks – not that we really need to stretch it beyond CommBank and Westpac – you get nearly 700 points added to the ASX 200.
That sort of uplift to the benchmark ASX 200 from just five constituents has never happened before and is a timely reminder of what “market hits fresh record high” means.
The “market” makes it sound like all the stocks are going up, but the market and the headline are bossed around by the top 20 – the banks, three big miners, two supermarkets, Wesfarmers etc. The banks are well and truly winning the war this year and swamping losses from BHP, Fortescue Metals, Woodside Energy, Woolworths and Rio Tinto and all the other companies battling in the bottom half of the performance charts.
The market is up 11 per cent – the big four banks and Macquarie are up more than 23 per cent each. For all the pushing by the likes of Aristocrat Leisure, Brambles, JB Hi-Fi, Qantas, REA, Seven Group Holdings, WiseTech and Xero – all of which hit record highs last week – their impact on the market this year is less than either CBA or Westpac.
So on another day the market is hitting a fresh high, and has had a good year, thanks to the banks – CommBank and Westpac, in particular.
It is just as staggering because the two banks are ASX 200 warhorses, whose earnings per share went backwards in the 2024 financial year and are forecast to be relatively flat in FY25 – you don’t have to be young and hip to move the dial; old and big is much more impactful.
Their market-moving share price appreciation comes in a year when their earnings per share (the key number for investors) went backwards, and amid expectations that earnings will be relatively flat in the coming three years.
The big banks are also heavily exposed to Australia’s economy – which is forecast to grow a below-average 1.5 per cent this year – and cost-of-living-stretched consumers. They operate in a concentrated industry where things like mortgage wars can flare up and wipe out some of the profits.
Their gains came from investors being willing to pay more for every dollar earned, rather than earnings growth. Yes, house prices and the jobs market are good, which takes away two of the big downside risks, but the rest doesn’t exactly scream all-time high.
That’s why Australia’s large-cap fund managers are scratching their heads this year. Most were underweight the banks at the start of the year on valuation grounds, only to see the bank shares take off and lift the index higher. The banks’ trade has barely eased all year and few large-cap fund managers are likely to have outperformed the banks-heavy ASX 200 come December 31.
It’s the time of year when everyone wants to get the crystal ball out, which is a futile exercise. Few predicted the big bank rally or that the ASX 200 would be closing in on 8500 points so late in the year.
What we can say, though, is that the financial markets have detached from economic reality. It’s an even bigger story in the United States, where the S&P 500 is up 26 per cent this year and 31 per cent in the past 12 months.
