ASX to open lower, Afterpay (APT) & energy stocks lift markets

Australia’s S&P/ASX 200 (ASX: XJO) is likely to open slightly lower on Monday morning as the Sydney Futures Exchange tips a near 20-point decline. Here’s the news you need to know…

Monthly gains driven by IT & energy

It was a mixed finish to the week, with markets waiting with bated breath for President Trump’s speech on his policy towards China.

The ASX 200 fell heavily in the afternoon to finish down 1.6% for the day. However, it wasn’t enough to stop the second consecutive monthly gain of 4.2% taking the year-to-date loss to 14%.

Looking at the month more broadly, it was the IT (+20%) sector, rallying behind Afterpay and energy (+13%) sector, thanks to a recovering oil price, that did the heavy lifting.

The US fared markedly better with the S&P 500 up 0.5% and Nasdaq 1.3%, as Trump took what appeared to be a more conciliatory tone in his response to the introduction of the Chinese Security Law in Hong Kong. This meant the S&P500 finished the month down, just 6% lower for the year.

Featured Rask Education video: what is the Dow Jones?

Reusable rockets send astronauts to space

Tesla (NASDAQ: TSLA) founder Elon Musk had a busy weekend with his SpaceX program, successfully launching NASA astronauts whilst also meeting the criteria for a $770 million stock bonus issue. This came as riots engulfed several US cities following the death of George Floyd at the hands of a Minneapolis police officer.

Well-known muesli and long-life milk producer Freedom Foods (ASX: FNP) fell 15% last week following an asset writedown and earnings downgrade. This one was unexpected given the non-perishable nature of their product line, which was a strong beneficiary of hoarding in early March. It seems the Freedom Foods’ out-of-home business including contracts with McDonald’s was the driver, down 75% from expectations in April and 50% in May.

Best & worse growing further apart?

Dispersion remains the name of the game in global sharemarkets.

Dispersion refers to the diverging performance of companies within the same index; think CSL vs. Westpac Bank on the ASX. Case in point is the S&P500’s strong performance since bottoming in March but with relatively few companies, including Microsoft, Amazon, Netflix, Alphabet and Facebook, moving the market higher.

The BetaShares NASDAQ 100 (ASX: NDQ) and ETF Securities FANG (ASX: FANG) ETFs are directly exposed to the tech-heavy sectors on the NASDAQ.

Also known as attribution dispersion, the trend simply means that fewer companies are seeing share price increases and ‘the big are getting bigger’.

Dispersion has historically been a fertile hunting ground for active investors because whilst markets overall appear quite overvalued, individual companies are anything but. Generally speaking, I’m supportive of an active, stock selection approach in this environment for my clients.

The morning report is written by Drew Meredith, a Financial Adviser and Director of Wattle Partners.

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