Marcus Today SMA | November 2020 Update
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NOVEMBER MARKET COMMENTARY
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ALSO IN NOVEMBER:
- The Australian Stock Exchange had a technical meltdown that saw trading halted just 24 minutes into the session on November the 16th. The ASX said a major software update of its Nasdaq-supplied trading platform caused a problem with combination trades, which are trades in multiple securities in one single order. Trading resumed without issue the following day.
- The NSW/Victorian border was reopened, and Qantas CEO Alan Joyce has said the airline instantly saw “massive demand”, with 25,000 seats on the Melbourne to Sydney route sold in the first 24 house, as they resumed 17 flights on that route.
- South Australian had perhaps the shortest lockdown of the pandemic, reversing its restrictions barely 24 hours after they were imposed, as it was discovered the decision was based on a lie told to contact tracers.
- The ACT government is set to give Canberrans vouchers worth up to $40 a day in the lead up to Christmas, in a $500,000 attempt to boost spending with local businesses.
- Treasurer Josh Frydenberg expanded the government’s business expense tax break to allow companies with over $5bn in revenue to instantly deduct the cost of new capital investments, as long as they make less than that amount in Australia
- The RBA kept the cash rate on hold in December at 0.1% - "Given the outlook, the Board is not expecting to increase the cash rate for at least 3 years."
- The Australian recession (technically) ended almost as quickly as it began after the Bureau of statistics data showed 3.3% rise in GDP in the September quarter.
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- The bank sector rose 17.18% as economic outlook optimism rose.
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- A bit of profit taking in the energy sector to end the month as OPEC delay their meeting, seemingly unable to get members to finalise the deal to delay the scheduled tapering of production cuts and to enforce the lack of compliance with earlier cuts. Saudi Arabia’s energy minister has threatened to resign as co-chair of an OPEC panel. After a 25%+ bounce in the oil price and the energy sector last month, a bit of profit-taking is to be expected.
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- The gold price fell 5.37% as the economic optimism and election clarity weighed and investors turned “risk-on”.
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- The VIX Volatility Index fell 45% through November – now sitting around 20 (down from 80 at its peak). A “normal” reading is about 15.
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- Base metals had a good month, with copper up 11.6%, nickel up 8.6%, Zinc up 8.1% and Aluminium up 10.8%.
- Iron ore rallied 3.7% through the month but has taken off in the early stages of December on the back of supply worries. Now sitting at record highs.
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- FOMC Minutes suggest the Fed are prepared to extend their money printing to "protect against emerging risks" or rising market interest rates - the Fed worrying about interest rates and being concerned about the impact of economic optimism is a change.
- Bond yields on the rise – good for banks and interest rate sensitive stocks – reflective of a renewed economic optimism.
- Tech came off the boil as the focus turned to recovery stocks - More taking a breath while those that were left behind catch up than a full-blown rotation.
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- Bitcoin jumped 40% to finish the month near its 2017 all-time high.
SANTA CLAUS RALLY Three weeks to Christmas and the commentators are talking about the “Santa Claus Rally”, which is when the market seasonally rallies into the New Year. It is a well-accepted market phenomenon, and there is some logic behind it. A lot of financial decisions are made by companies and individuals at the end of the tax year which for a lot of the northern hemisphere is December 31. One of the big decisions is what to do with profits and in the case of individuals in particular that quite often means there is this decision in January to put the money into the equity market. With a pandemic recovery and a stock-market rally going on, a lot of that will find its way into the equity market. Net result a lot of fund managers are handed money at the beginning of the year, and they invested in January. The Santa Claus Rally is the market running in anticipation of a good rally in January. It is more a US thing than an Australian thing (our financial year-end is June 30, not December 31) but with such a high correlation between our markets, we also participate. This chart shows the effect working in Australia. This is the ASX 200 "Seasonal Chart" since 1990. It shows the average performance of the market over the calendar year, month by month. So you can see that on average the market has its best months from December to May and goes sideways the rest of the year, hence the expression "Sell in May and go away".
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