Weekly recap
What happened in markets
The Australian sharemarket softened last week, down 1.5%, as it finished the week with four straight sessions of losses. The Reserve Bank of Australia left interest rates on hold at 4.35%, while the unemployment rate fell to 3.9% in November, potentially ruling out a February 2025 rate cut. Profit taking was another main theme across the week, following sharemarkets recent run of strength. This was seen in the Information Technology sector (-5.73%), following news that China has opened an antitrust investigation into US chipmaker NVIDIA. Elsewhere, the Financials sector lost ground, as NAB conceded 2.3%, Westpac dropped 1.6% and ANZ lost 5.8%.
US sharemarkets were mixed last week, as the S&P 500 lost 0.6%, while the NASDAQ increased 0.5%. The US Consumer Price Index (CPI) for the month of November rose 0.3%, in line with expectations, which increased markets expectations of a rate cut in December of 0.25%. On an annual basis, the CPI increased 2.7%. Alphabet (+8.6%) was the main standout within the Information Technology sector, while NVIDIA (-5.8%) weakened. Within the sectors, Communication Services (+2.4%) and Consumer Discretionary (+1.4%) outperformed, while Utilities (-2.7%) and Materials (-2.9%) lagged.
European sharemarkets were lower last week, as the STOXX Europe 600 dropped 0.8%. The German DAX outperformed, up 0.1%, while the UK FTSE 100 shed 0.1%. The past week saw the European Central Bank reduce their key interest rate by 0.25%, bringing the deposit rate to 3.0%. German economic data disappointed, with industrial production and exports declining, prompting the Bundesbank to slash its 2025 growth forecast to 0.1%. The Health Care (-2.2%) and Telecommunications (-2.1%) sectors lagged in the indices, while the Financials (+1.2%) and Automobile & Parts (+2.8%) outperformed.
Stock & sector movements
What caught our eye
Moving on from last week’s global sharemarket 2024 year in review, this week we look more closely at the Australian sharemarket. Comparatively, our local market was among the weaker performers globally. A key reason for this being Australia’s sensitivity to the global business cycle, given our economy’s output is largely reliant on exported commodities like iron ore and coal. Higher interest rates and costs dampened global production, along with China’s property market downturn, which weakened demand for such commodities. Investors were still unlikely to be disappointed, with a respectable 13.2% return generated by the ASX 200 calendar year-to-date. It’s also worth mentioning this result was still well above the average calendar year return for the 10 years prior of 8.2%.
From a sector perspective, performance has been abnormally varied. The Technology, Financials and Consumer Discretionary sectors have been the main winners in 2024. Unsurprisingly, the cyclically exposed Energy and Materials sectors had the hardest time, crippled by lower commodity prices.
What was interesting this year was the banks and how well they performed. Fundamentally, they all look unattractive, a view held by many if not all institutional brokers and analysts. The banks have delivered very little earnings growth, if any at all, and are priced expensively compared to history, global peers and the rest of the Australian market. During the year, Commonwealth Bank became one of the most expensive bank stocks in the world, trading at 28x its last twelve months' earnings. To put this into perspective, Google’s parent, Alphabet, is cheaper at 25x its last twelve months’ earnings.
Meanwhile, dividends offered by the banks have lost their shine, with many other companies in the ASX 200, and even cash term deposits, providing a similar if not better yield. Yet, the big four have been, ironically, the main four contributors in the ASX 200 (outside of ANZ, which was ranked the eighth largest contributor). We suspect this has to do with their relative size in the market, alongside perhaps because the other traditional blue-chips miners were seen as even less desirable, given the China’s softer economic outlook and uncertain commodity prices. An investor’s allocation to the banks and miners during the year was likely a major determinant of their success in 2024. For example, of the ASX 200’s 13.2% return calendar year-to-date, Commonwealth Bank contributed 3.9%, while BHP detracted 1.6%.
Outside of the banks and miners, other stocks that did well were ones with exposure to key thematics. For example, data centres via Goodman Group (+46.0%), artificial intelligence via WiseTech (+61.4%) and NextDC (+13.7%), alongside companies with US growth exposure like Xero (+50.5%), Pro Medicus (+161.3%), ResMed (+49.4%) and Block (+26.7%).
The week ahead
This week will see the release of the Westpac Consumer Confidence index along with inflation expectations for the month of December.
Internationally, the Unemployment Rate will be revealed in the UK, while Retail Sales data will be released for both the US and the UK. However, all eyes will be on the US Federal Reserve as they meet regarding the US interest rate.
From all the Cutcher & Neale Wealth Management & Financial Planning team we’d like to take this opportunity to wish you and your family a very Merry Christmas and a safe and healthy 2025.
The Cutcher’s Investment Lens will be returning late January 2025.
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