Rates are finally rising – how are investors responding?

Despite being wholly unanticipated just weeks ago, the RBA’s decision to increase interest rates by 35pts, announced on Tuesday, actually felt like something of an anticlimax. It is easy to forget that the RBA was, until recently, adamant that rates would remain on hold until at least the end of 2022, and likely through 2023, unless wage growth was clearly evident, however inflation data well above the target rate has forced its hand. In the US, the Federal Reserve increased rates by a further 50pts overnight on Wednesday, and was cheered by sharemarkets, which rallied more than 2%, as investors feared the Fed’s next move would be closer to 75pts. The end of extraordinarily accommodative monetary policy has arrived. 

The ASX has shrugged off the RBA’s move, and has closed the last five days broadly unchanged. The worst day for the week was Monday, when US markets were rattled by Amazon’s first quarterly loss since 2015, and Apple reported significant supply chain disruptions due to Covid-related lockdowns in China; Australian tech stocks fell heavily and all sectors were in the red, but investors saw limited buying opportunities and most nabtraders have stayed on the sidelines. Cash levels continue to rise as investors hope for a pullback – or perhaps the first decent return on their savings in several years. Accumulators continue to buy the ASX200 via ETFs; these now feature regularly in the top 10 buys for those who are not trying to time the market.

For stockpickers, Fortescue Metals Group (FMG) remains the favourite, but volumes are fluctuating significantly. BHP (BHP) is a consistent buy as investors see value in resources, one of the few sectors likely to hold its value in an inflationary environment. Pilbara Minerals (PLS) has also recently returned to the most traded table, after a period of disinterest from investors. While PLS shares have recently had a small bounce and are up 140% over twelve months, they are well off their 52 week high of $3.89. At $2.81, investors are starting to see value and have been buying.

Pilbara Minerals (PLS) shares over twelve months

Source: nabtrade 

With three of the big four banks reporting their half yearly earnings, investors are getting excited about financials again, with ANZ (ANZ) shares suffering a modest fall following Wednesday’s update to the market. ANZ is usually the least traded of the big four banks on the nabtrade platform, but it found favour among high value investors who bought the stock. Westpac (WBC) does not report until next week, and has seen mixed trading, while nab (NAB), which reported on Thursday, also saw enthusiastic buys. Selling in Commonwealth Bank (CBA) may have funded the buys. In other financials, Magellan Financial Group (MFG), the hugely popular fund manager that has seen a significant downturn in its fortunes over the last twelve months, has climbed more than 10% in the last couple of weeks, and has seen trimming as a result.

Qantas (QAN) updated the market with the announcement that it would return to profitability next financial year, and capacity will return to 105% of pre Covid levels next month. While also off its 52 week high, the company’s share price is up nearly 15% year on year, giving investors an opportunity to lock in profits. Flight Centre (FLT) shares have also seen selling; FLT is up 20% year to date, and more than 30% over twelve months.

Flight Centre (FLT) shares over twelve months

Source: nabtrade

On international markets, Amazon’s surprise loss shook the Nasdaq; AMZN.NAS shares fell nearly 15% in the after-market on Friday. The loss was more than accounted for by the write-down of the ecommerce giant’s 20% holding in Rivian (RVN.NAS), the electric vehicle manufacturer that Amazon hopes will electrify its delivery fleet; Rivian shares are down nearly 70% since their listing late last year. Online sales were down 3%, which rattled investors, however the company’s Amazon Web Services cloud solution continues to be one of the leaders in its field. Nabtraders added to their Amazon holdings.

Amazon (AMZN.NAS) shares over twelve months

Source: nabtrade

Analysis as at 5 May 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.