The Federal Reserve sparks a relief rally – is it time to buy?

Firstly, thank you so much to all those who traded through nabtrade on Thursday – with your help, we raised over $250,000 for Givit, to assist those in flood affected areas. 

It’s an old maxim that markets crave certainty – even when that certainty may not be particularly positive. The US Federal Reserve raised rates for the first time since 2018 on Wednesday night, indicating this would be the first of many increases in an attempt to tame inflation that is running at its highest level in 40 years. The S&P500 was up over 2% on this news, with the Nasdaq up nearly 4%. The ASX200 also staged a rally, up over 1% and now up more than one and a half percent over 5 days. Interestingly the materials and energy sectors are the only sectors in the red over that period, after outperforming through much of 2022 so far.

Even for casual observers it is apparent that banks will be some of the biggest beneficiaries of higher interest rates, and the financials sector was a big winner on Thursday. NAB (NAB) shares closed at their highest level since relief rally of 2019, and at more than $31, many holders took the opportunity to lock in profits. Commonwealth Bank (CBA) shares closed above $106, and while they remain off their 52 week high of $110, at this price many investors feel they’ve done well enough, particularly given many were buying in the low $90 range just a couple of months ago. Westpac (WBC) has been a strong buy over the last twelve months as its performance has lagged the other three majors; it was the least popular sell of the banks on Thursday, while ANZ (ANZ) also saw trimming. These stocks made up four of the top 5 trades on Thursday, an unusually high proportion.

NAB (NAB) shares over twelve months

Source: nabtrade

Profit taking in the banks has pushed materials further down the most traded list. Fortescue Metals Group (FMG) remains heavily traded by high value investors, while BHP (BHP) has seen enthusiastic buying as it pulls back to the $45 mark after a recent bounce above $50. As the largest weighting – more than 10% - on the ASX following its delisting from the London Stock Exchange, BHP alone can be responsible for a positive or negative day on the ASX200. Rio Tinto (RIO) has also fallen from recent highs but saw trimming on Thursday.

Rio Tinto (RIO) shares over twelve months

Source: nabtrade

Enthusiasm for battery metals has not abated, and recent favourite Core Lithium (CXO) was up 4% on Thursday despite no market announcements. After a small recent pullback, it remains up nearly 400% over twelve months; holders were trimming. Lake Resources (LKE), also a lithium hopeful, is on a similar trajectory to CXO and has also seen selling.

Core Lithium (CXO) shares over twelve months

Source: nabtrade

Pilbara Minerals (PLS), on the other hand, was a modest buy, despite being up a similar amount. PLS has fallen from a 52 week high of $3.89 to its current levels around $2.70, so those waiting for a pullback have been seizing the opportunity. 

Wesfarmers (WES), likely to be a beneficiary of widely reported inflation in consumer goods prices, has seen a small bounce from recent lows and has seen some buying, albeit in much smaller volumes than at its price of $48 a few weeks ago. 

On international markets, extreme volatility in Asian markets has seen investors taking a greater interest in companies listed on the Hong Kong exchange. The Nasdaq’s Golden Dragon China Index was at near decade lows earlier this week, and JPMorgan went so far as to call parts of Chinese tech ‘uninvestable’ due to regulatory risk and concerns about China’s close ties to Russia. Many investors sold stocks including Alibaba (9988.HK) and Tencent (0700.HK) in order to prevent further losses.

Alibaba (9988.HK) shares over five years

Source: nabtrade

Analysis as at 17 March 2022. This information has been provided by WealthHub Securities Ltd the ASIC Market Integrity Rules and a wholly owned subsidiary of National Australia Bank Limited ABN 12 004 044 937 AFSL 230686 (NAB). Whilst all reasonable care has been taken by WealthHub Securities in reviewing this material, this content does not represent the view or opinions of WealthHub Securities. Any statements as to past performance do not represent future performance. Any advice contained in the Information has been prepared by WealthHub Securities without taking into account your objectives, financial situation or needs. Before acting on any such advice, we recommend that you consider whether it is appropriate for your circumstances.