Source: © Cammeraydave | Megapixl.com
Rising Bond Yields. Global Tech Rout. Commodities boom. Bitcoin Craze. GameStop Mania. Dividend Supercycle.
The markets were driven by a tug of war this week between rising bond yields and tech rout on one hand, and reflation trade on the other side. It is pretty clear that the concern was more on the simmering inflation expectations amid soaring oil prices and record high copper prices.
Last day of the week saw local tech firms tracking a heavy sell-off in U.S. peers overnight as rising bond yields sparked concerns over heightened valuations and prompt profit-taking. Buy-now-pay-later giant Afterpay tanked up to 13.7%, eyeing worst day in 11 months. Besides, BNPL juggernaut Afterpay’s recent announcement to boost its stake in its US operations to 93 per cent also grabbed investors’ attention.
At the same time, thematic trends such as commodities, bitcoin, and dividend supercycle were some interesting pockets of opportunities from an investment standpoint.
Notably, escalating economic revival hopes helped the US energy sector post share market’s biggest gains to date this year on Wednesday, fuelling prices of energy stocks. The S&P Energy Index has surged by over 31 per cent in 2021, outperforming the broader S&P 500 index delivering a 6 per cent gain.
An uptick in the energy sector was in part stimulated by the ongoing oil price rally, backed by a revival in transport demand as nations loosen virus-induced curbs. Closer to the local market, the Australian energy stocks soared to one-month high on Thursday as oil prices touched 13-month peak after the US government data demonstrated a fall in crude output.
Additionally, copper breached the USD 9,000 per tonne mark for the first time since 2011 amid a broader commodity rally in metals from nickel to iron ore. Looking forward, China’s return from the lunar holiday and potential revival of the global economy is anticipated to give a leg up to copper demand over the near-term. Speculations are rife that the latest commodity price gains may prompt a supercycle in the commodity market on the back of strong consumer demand.
The recent boom in the commodity market seems to be a result of investors’ hedge against inflation that might get triggered by Joe Biden’s massive stimulus package. Investors remain concerned that the huge federal stimulus, along with rising government bond yields and increasing commodity prices, could mount inflationary pressures over time.
While investors weighed rising yields against the whopping stimulus, volatile trading continued in crypto market over the week, with bitcoin crossing USD 55,000 mark before sinking below USD 50,000. The losses in the digital coin accelerated as investors’ caution about the bitcoin rally took hold after pessimistic comments from Tesla CEO Elon Musk and Treasury Secretary Janet Yallen.
Despite the recent fall, the outlook for the beloved cryptocurrency remains quite promising amidst its growing acceptance from mainstream investors.
While bitcoin’s rollercoaster ride kept investors at the edge of their seat, the unexpected rise in GameStop share price of over 100 per cent on Wednesday left them completely baffled. The sudden uptick in the video game retailer’s share price came as a surprise for investors who expected stabilisation in its stock price after recent hearings in the US Congress over retail trading frenzy.
On the domestic front, market participants remain glued to the ongoing earnings season, which has continued to surprise investors on the upside so far. Investors cheered the return of several ASX-listed companies to profitability amid promising economic developments. The current earnings season brought a major sigh of relief for income investors with a restoration of dividend payments by many companies, particularly miners and bankers.
Companies including Rio Tinto, Fortescue, BHP Group, Newcrest Mining and JB Hi-Fi remained ahead of the curve in terms of bolstering dividend payments. The better-than-expected dividend payouts during the earnings season have sparked discussions around the potential commencement of a dividend supercycle in the Aussie market.
While the market momentum continues to be driven by rising bond yields and inflationary expectation, lucrative opportunity is unfolding for investors to tap potentially attractive themes tied to the economic rebound. The current scenario calls for a more cautious and disciplined approach towards investment selections on part of investors to cut the mustard in 2021.
