Weekly Market Update – 23 May 2022

Stocks continue their sell-off, S&P 500 toys with bear market territory

At a headline level, global indices were weaker last week, dropping 3.3 per cent in AUD terms and accelerating the year-to-date sell-off in stocks globally.

The S&P 500 joined the Nasdaq in briefly entering bear market territory, which is typically defined as a fall of 20 per cent or more.

The S&P 500 fell -20.9 per cent at its low point during the market’s Friday trade from intraday record highs in January, though it ultimately recouped its losses in the final minutes to close just above bear territory.

The fall for the week was largely driven by disappointing results from several of the US’s largest retailers with Target, Walmart, and Home Depot all falling short of consensus estimates by nearly a third.

Their financials showed a hit to all retailers’ profit margins as inflation continues to chip away at company profits.

The discussion now being had is the potential impact of these big-box retailers passing on the increased input prices to consumers in the coming months, which may be a cause for inflation to stay higher for longer.

These results dampened market sentiment and resulted in the seventh straight week of losses for both the S&P 500 and Nasdaq and the eighth for the Dow Jones Industrial Average.

Labour wins Australian Election 

Over the weekend, millions of Australians submitted their votes for the federal election.

The outcome of the election now sees Anthony Albanese, the leader of the Australian Labour Party serving as the 31st prime minister of Australia. 

This change in leadership ends the Coalition’s near decade-long reign, which began with Tony Abbot’s election in 2013. 

Though it is a changeup of parties, history suggests that the outcome of Australia’s federal election bolsters the local share market, irrespective of the party in power. 

Eight of the last ten elections have seen the ASX200 increase by an average of 2.4 per cent in the three months following an election.

It will be interesting to see what the change brings forth and we will continue to watch the space to see what unfolds next.

More to follow on this front. 

Local Job & Wage Data

It was a week littered with numbers with the Australian Bureau of Statistics releasing new unemployment and wage data.

In terms of unemployment, the local labour market continues to remain tight.

Australia’s unemployment rate continues to fall, with the rate now dropping to 3.9 per cent which came in line with consensus estimates.

To put that into perspective, the last time the unemployment rate was this low was back in August of 1974.

Looking further into the underlying data revealed a robust trend, with full-time employment growing by 92,400 while part-time employment decreased by 88,400.

This is significant because full-time employees typically earn slightly more than their part-time counterparts, which may encourage additional spending in our local economy.

Outside of this, the underemployment rate, which refers to people who are already employed but are willing to work more hours, continues to decline, falling 0.2 per cent to 6.1 per cent.

On the wages front, the wages of Australian workers continue to rise, but real wages continue their slump.

Wage growth came in at 0.7 per cent in the first quarter of 2022 and 2.4 per cent over the year.

The largest gains were 3.1 per cent in rental, hiring, and real estate services, whilst both manufacturing and professional, scientific, and technological services grew by 2.7 per cent.

In comparison, only a 1.5 per cent pay rise was seen in the electricity, gas, water, and waste services industries.

Though these figures detail an increase, real wage growth which adjusts wages for inflation continues to remain of concern.

Inflation locally sits at 5.1 per cent and with wage growth sitting below half of the rate of inflation, which starts to paint the picture of how pay packets are shrinking in real terms.

Hawkish RBA Minutes

At the last Reserve Bank of Australia’s Monetary Policy Decision, the central bank hiked rates by 25bps, which caught many market participants off-guard as they were forecasting a 15bps increase.

So, minutes published last Tuesday from the RBA’s latest Monetary Policy Decision would provide insight into understanding how the central bank came to that conclusion.

The minutes published revealed quite a different perspective than what market participants were pricing in as the board considered quite a contrasting perspective.

Overall, the board was split between two decisions in its meeting on the 3rd of May.

Two scenarios were considered, either the 25bps hike which occurred or a significant 40bps hike.

Commentary from the bank in its minutes highlighted that the latter hike could’ve been justified given the upside risks to inflation and the current very low level of interest rates, though the board ultimately decided that the 25-bps increase was the preferred option.

The previously anticipated 15bps hike was considered, though the central bank’s members decided that it was not the preferred option as it was highly probable that further rate rises would be required in the near term.

Though the RBA does not like to detail any specific forecasts, the minutes published indicated that internal RBA economists assumed the cash rate would reach 1.75 per cent by the end of this year and 2.5 per cent by the end of the following year.

Additionally, the board noted that when making future decisions that it would continue to be guided by inflationary and labour market data as members of the board expressed that significant uncertainty remains in the economy which will continue to play out.

ASX Weekly Recap – how do we compare to the U.S?

In terms of our local market, the ASX200 outperformed its global peers and gained 1 per cent for the week.

Overall, the ASX200 continues to track above other global indices in terms of returns, likely due to our market’s weighting towards sectors.

The ASX has largely been comprised of ‘old-fashioned’ companies such as the mining, mineral, and banking giants and lacks the same exposure to the growth heavy technology sector when compared to its US counterpart.

Why this sector allocation is important is because it shifts how the indexes perform under certain market cycles.

The U.S. outperforms in periods of market strength and tends to underperform in a falling market. The opposite is true for the ASX.

We generally outperform in a falling market, evident by declines of the ASX 200 year-to-date of (-5.85 per cent) vs the S&P 500’s (-18.66 per cent), though in a rising market, our local market doesn’t capture the same upside.

Transitioning across into the specifics of last week saw the biggest rises locally in the technology and materials sector, led by gains in recently listed Block Inc (SQ2) and Mineral Resources (MIN).

Both the consumer discretionary and consumer staples sectors were the worst performers, weighing down markets following US retail behemoths Target & Walmart reporting lower-than-expected quarterly financials which spooked investors locally.

In terms of our portfolios, the best performers in our PRIME Australian Equity Growth SMA were OZ Minerals Limited (OZL) which gained 5.05 per cent and Northern Star Resources Ltd (NST) which gained 4.98 per cent, thanks to a bounce in both the commodity prices of copper and gold.

Similarly, exposure to Wesfarmers Limited (WES) and Woolworths Group Ltd (WOW) were the biggest detractors in terms of portfolio performance, falling -6.41 per cent and -6.13 per cent respectively.

In stock-specific news. Crown Resort Ltd (CWN) shareholders gave the final green light in accepting the takeover bid from private equity behemoth Blackstone at a consideration of $13.10 per share, though the bid remains subject to regulatory approval by the relevant gaming authorities.

Woolworths Group Ltd (WOW) also announced that it has paid $243 million in acquiring a majority position in MyDeal Limited (MYD), an e-commerce marketplace, for $1.05 per share which represented a 62.8 per cent premium to MYD’s last closing price. The acquisition of MYD will likely strengthen WOW’s existing online offering and complement its existing operations.

Looking ahead

Monday 23rd May 2022 – Friday 27th May 2022

  • Monday: AU RBA Ast Gov Kent Speech
  • Tuesday: US Manufacturing PMI (May), US Services PMI (May)
  • Wednesday: US Core Durable Goods Order (Apr), US New Home Sales (Apr)
  • Thursday: AU Private New Capital Expenditure (Q1), US FOMC Meeting Minutes, US GDP (Q1)
  • Friday: AU Retail Sales (Apr)

Friday 20th May, 5pm values

All Ordinaries 7,386+79+1.1%
S&P / ASX 2007,140+65+0.9%
Property Trust Index1,452-5-0.3%
Utilities Index8,385+285+3.5
Financials Index6,538+3+0.0%
Materials Index17,298+621+3.7%

Friday 20th May, closing values

U.S. S&P 5003,901-123-3.1%
London’s FTSE7,389-29-0.4%
Japan’s Nikkei26,739+312+1.2%
Hang Seng20,717+819+4.1-%
China’s Shanghai3,146+62+2.0%

Key dividends

Monday 23rd May 2022 – Friday 27th May 2022

  • Monday: Div Pay-Date – Challenger Capital Notes 2 (CGFPB)
  • Tuesday: Div Ex-Date – Amcor CDI (AMC)
  • Wednesday: Div Pay-Date – Challenger Capital Notes (CGFPA), Challenger Capital Notes 3 (CGFPC)
  • Thursday: Div Ex-Date – James Hardie Industries PLC (JHX) Div Pay-Date – Bank of Queensland Limited (BOQ)
  • Friday: Div Ex-Date – CSR Limited (CSR)


Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750

If you would like to discuss your situation, please speak to your adviser or email clientservices@primefinancial.com.au

Mark JohnsonT: (03) 8825 4738Michelle BromleyT: (03) 8825 4751
Livio Caiolfa T: (03) 8825 4748Nicole LewisT: (03) 8825 4734
Marcus AingerT: (02) 9134 6292Nicholas MillerT: (03) 8825 4722
Dylan CresswellT: (03) 8825 4707Gina McIntoshT: (07) 3557 2557
Jarrod Rodda T: (03) 8825 4729

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