Redefining the ASX SectorsThought you might find this useful – I have taken the All Ordinaries Index (ASX: AXO), ignored the official sectors and re-allocated all stocks to new ‘Marcus Today’ sectors – putting them in groups that more usefully represent the sector ‘themes’ we talk about in the newsletter. This takes away the US inspired and somewhat unhelpful GICS sector classifications that are too clumsy to be used for stock picking. We like to think in 'themes' and the model we have built allows us to build custom sectors around any theme we choose. These new sectors and custom sectors will help you and us pick the stocks to match the underlying themes. For instance, we have put Macquarie Group (ASX: MQG) in the 'Stock Market Stocks’ sector, not the bank sector. And here for instance is the 'Stock Market Stocks' sector – a sector that should do well when the stock market goes up: And here is a summary of all the sectors we have created - we will add and subtract as we go: We’ll develop these sectors and add new sectors to fit new themes for you over time; they are more useful than the ASX sectors for investors like you. For instance, I'll create a 'Travel Trade' sector for you today. Essentially they are watchlists for themes.
- No change to being fully invested.
- Energy sector trade looking OK.
- Travel Trade (QAN, WEB, FLT) looking OK.
- Technology Trade looking OK. We are well overweight in this sector. Technology powering along in the US.
- REITs (held in the Income SMA) topping out a touch. VCX takes a huge write-down – a sign of more valuation downgrades to come especially in retail property. Not enough to concern us yet. These write-downs are predictable. Not a surprise. It's why the sector is on its back.
- Neutral on banks. Overweight in Income SMA.
- Overweight stock market stocks (MQG, MFG) and will remain that way until the market turns.
- Healthcare a bit underweight but only because recovery stocks offering more bang for the buck at the moment.
- US civil unrest being ignored.
- Chinese trade situation in the background. Watching for the day it dominates again. Not today.
- Relapse risk is real as the world relaxes restrictions and social distancing discipline. There maybe hasn’t been time for a second wave. It is the biggest market risk out there. But not concerning the markets at the moment.
- US election coming into focus with Trump ahead but not home. His “Don’t f@#$ with me” speech this morning appeals to his voter base. Wars win elections (Thatcher and the Falklands). Trump, like him or not, is good for the markets.
MORE DETAIL ON THEMES
- Race Riots ignored by the market – More protests were ignored by the markets overnight as many States saw the mass flaunting of curfews and as 16,000 National Guardsmen were employed over 24 US States. It is being called a “Market Disconnect” on the newswires. Trump was recorded talking to US State Governors saying you have to “Dominate” or “you’re wasting your time” and you’ll look like a “bunch of jerks”. Trump told State Governors they have been weak. He is threatening to use an old Federal Law called the Insurrection Act to deploy active duty US military intervention to quell riots. George Floyd’s brother said “Lets do this another way” saying he wanted people to get educated, vote and not destroy their own communities. Trump made a statement in the Rose Garden this morning (the "Don't F@#$ with me speech") targeting the criminals and ‘domestic terror’, hijacking otherwise peaceful protests. He is mobilising all available resources to ‘dominate’ the streets until the violence is quelled and if the State Governors do not do it he will deploy the US military to do it for them.
- Second Wave – There are concerns that the riots in the US will cause a second wave of coronavirus as social distancing is ignored. Case numbers (you can track them here) improved a bit overnight in the major market-influencing countries, the US and the UK. They are still rising in some countries and we are clearly still at risk of a second wave, although it is not worrying the markets at the moment.
- Facebook versus Trump – Interesting social media development – Facebook saw some employees stage a “virtual walkout” over Trump tweets posted on Facebook – Zuckerberg decided not to remove the posts – employees felt the posts which included the line “When the looting starts the shooting starts” breached company policy of inciting violence. The Facebook, Twitter and Snapchat share prices were all up 3%. It is an interesting development if social media has to develop policy over freedom of speech.
- US Economy over the worst – The US ISM Manufacturing Index saw a small improvement off an 11 year low in May (up from 41.5 in April to 43.1) suggesting the US economy is over the worst and stabilising. We have the jobs numbers on Friday which will show the worst unemployment since WW2 (consensus 19.7%) and may also mark the low point of the economy. At some point, the market will start to focus on the speed of the economic recovery. At the moment the markets appear to be discounting a V-Shaped recovery which may end up being the debate point; V-Shaped may be too optimistic. GDP fell 5% in the first quarter and is expected to fall as much as 40% in the second quarter.
- China – Good PMI numbers yesterday suggest their economy is plodding along OK. Good for iron ore. All iron ore stock charts looking good. FMG is now up 80% from the bottom.
- Energy – OPEC+ moved its meeting up to Thursday – a positive for the energy sector. The Energy sector was the best performing sector in the US overnight up 1.68%.
- Can Australia escape recession – We have the Q1 GDP number out tomorrow in Australia – the QonQ estimate is -0.3% and +1.4% YonY. Clearly the 2nd Q GDP number will be terrible, but the interest is whether we can register a small positive GDP number in Q1 which means we might just escape the official definition of a recession over the coronavirus. We would be about the only country to do so, although in the wake of the Bush fires earlier this year it seems unlikely.
- RBA Today – Most brokers have rates on hold until the end of time. Philip Lowe spoke last week and is likely to repeat that; thanks to “health outcomes” it was now “entirely possible” that unemployment and the economic downturn had not been as bad as expected. There is also the speculation that the $60bn ‘saved’ on the Jobkeeper program could be spent elsewhere on other ‘more tailored’ programs. He also talked about responding to problems like COVID-19 with over-regulation that kills the “dynamism of the economy”, in particular industrial relations – something Morrison also spoke about last week with new industrial relations legislation likely to be in place by Christmas.
- US Election focus – The US Election is coming into focus over the riots. Joe Biden and the Democrats are predictably attempting to politicise the riots. Joe Biden meeting with black community leaders in a church saying he would create a police oversight board if elected. At some point the markets are going to start to focus on the daily US election cycle – Trump is good for markets, he is pro-business, pro-growth and pro-low interest rates. The election is not until Tuesday 3 November. Biden and Trump are respectively the oldest and second-oldest major party presumptive nominees in US history. If Biden was elected, he would be the oldest President in history.
- Trade deal speed humps – The Chinese have instructed state-owned firms to halt purchases of US soybeans and pork, threatening the Phase-one trade deal, in retaliation at the US changes to Hong Kong’s privileged trade status.
- Fear subsides – The VIX Volatility or ‘Fear’ index continues to settle down nicely:
- Travel Trade continues – The US Airlines index is up 53% in 11 days. The “Travel Trade” continued overnight with the index up another 4.48%. The rally is in anticipation of border restrictions coming off in the US. Good for our travel stocks.