The local sharemarket is within a whisker of where it started the year as November continues to deliver the single best monthly performance ever seen for the S&P/ASX 200.
Market observers point to multiple sources for the surge in investor optimism, including low interest rates, low inflation, the promise of COVID-19 vaccines and the peaceful transfer of power to a new President in the United States.
The index gained 39.2 points to close 0.6 per cent higher on Wednesday at 6683.3 points, a new nine-month peak and within a point of its 6684.1 opening mark on January 2, the first session of the year.
During trade the index got as high as 6713.3, just 6.7 per cent below the all-time high reached in February as it moves closer to completing a remarkable V-shaped recovery.
The switch from COVID-19 losers to winners continued on Wednesday, with the information technology, healthcare and communication sectors underperforming, while the financial, material and energy sectors all outperformed.
“Markets are really just giving us a forward look at what the future is going to look like from here on in,” Bell Direct market analyst Jessica Amir said.
“It is a pretty good day and another nine-month high, there is not much to complain about.”
While some market watchers believe the ASX would end 2020 around current levels, Ms Amir said she thinks it could move even higher.
“The Santa rally traditionally starts this week and goes to the second week after New Year’s Eve. The reason that a lot of people think the rally will continue is because the dust has not even settled after the US election … Every single year after a US election the Australian market has rallied.”
Joe Biden’s appointment of former Federal Board chair Janet Yellen as Treasury Secretary was also well-received by markets because she was likely to stimulate the US economy, Ms Amir added.
The energy sector outperformed after oil prices jumped 4 per cent and appeared on track to return to $US50 per barrel. This helped Woodside Petroleum leap 3 per cent to five-month highs of $23.31 and Santos jump 2.7 per cent to nine-month highs of $6.53.
BHP added 3 per cent to a three-month high of $39.46. Among the banks, National Australia Bank surged 3.1 per cent to $24.05, ANZ gained 3 per cent to $23.66, Westpac rose 2.2 per cent to $20.89, and Commonwealth Bank lifted 1.5 per cent to $82.37, its highest close since February 27.
Chief economist at BetaShares ETFs, David Bassanese, agreed there was more money waiting to be deployed into equities, with investors who missed out this month now looking for a buying opportunity.
“The global economy is almost in the cyclical sweet spot,” he said
“[There is] a lot of spare capacity and low inflation. Things can recover without the fear of interest rates or inflation spoiling the party.”
The best performers on Wednesday were Whitehaven Coal, which shot up 10.7 per cent, and Omni Bidgeway, which surged 9.1 per cent.
Flight Centre closed 8.9 per cent higher, Webjet was up 7.1 per cent and airport and shopping centre owner Unibail-Rodamco-Westfield gained 7.3 per cent. The biggest decline was a 7.2 per cent fall for Mesoblast.
Among the technology stocks, NextDC slid 5.9 per cent, Afterpay fell 5.6 per cent and Appen dropped 5.4 per cent.
The S&P/ASX 200 has gained 12.9 per cent so far in November, eclipsing the 8.8 per cent gains of April.
However, State Street Global Advisors’ head of portfolio management in Australia, Bruce Apted, warned the current “vaccine rally has many similarities to a classic junk rally”.
Companies with the highest performance so far this year have dropped, while companies with lower growth, lower earnings revisions or higher debt were suddenly outperforming.
“The junk rally describes the average characteristics of the companies as they have been this year,” he told The Age and The Sydney Morning Herald.
“If the vaccine returns us to the old world, then many of these companies will likely enjoy real benefits and will likely see aspects of quality and risk improve. Of course, it is still unclear just what the ‘new normal’ will look like and precisely how much many of these businesses will actually benefit.”
He added there were two risks in the vaccine rotation – that high quality companies would underperform and that “beaten up and riskier parts of the market” would rally.
Source: Thanks smh.com