The Big Picture
After recovering through 2010, a lengthy downtrend in sector prices between 2011 and 2015 gave way to a relatively stable trajectory similar to that experienced in the latter part of the 1990s and first few years of the 2000s.
The late 1990s and early 2000s was a period of frequent macroeconomic upheaval during which time sector pricing nonetheless proved relatively stable.
Relative stability in sector prices suggests a chance for individual companies genuinely adding value through development success to see their share prices move higher. This was the experience in the late 1990s and early 2000s.
Still vulnerable cyclical conditions were aggravated in the second half of 2015 by a push from investors worldwide to reduce risk. Sector prices were pushed to a new cyclical low some 90 months after the cyclical peak in sector equity prices but these conditions were reversed through 2016 and 2017 although, for the most part, sector prices have done little more than revert to the 2013 levels which had once been regarded as cyclically weak.
With a median decline in prices of ASX-listed resources companies through the cycle of 89%(and 30% of companies suffering a decline of more then 95%), the majority of stocks remain prone to strong 'bottom of the cycle' leverage in response to even slight improvements in conditions.
In the absence of a market force equivalent to the industrialisation of China, which precipitated an upward break in prices in the early 2000s, a moderate upward drift in sector equity prices over the medium term is likely to persist.
The Past Week
Equity markets put aside concerns about a yield curve inversion to push higher in a continuation of the market recovery precipitated by the Federal Reserve policy pivot in January.
The possibility of a US-China trade agreement, held out temptingly by both governments, also helped underpin market performance.
The technology sector, within the US market, has been especially strong with hardware manufacturers and service providers both contributing. Some defensive market components, including real estate and utilities, have contributed to a dual cyclical-defensive upward track in the market which highlights the ongoing ambiguous expectations about prospective conditions.
Metal prices have held their ground despite concerns among investors about slowing global growth, including signals from the bond market implying weakening activity.
Crude oil prices continue to rise, also against the trend of predictions about global growth, although supply side constraints have been important influencers of price action.
Weak demand growth in metal markets has also been offset to a large extent by slow growth in metal output, checking what might have otherwise been a build-up in metal inventories.
Apparently contradictory pressures in metal markets and financial markets about the growth outlook will require reconciliation in coming weeks leaving metal prices at some risk of a downside move to match the implied financial market outlook.
A compromise in the tug of war between metal markets and financial markets is possible if investors in the latter conclude that they have been too pessimistic about the growth outlook.
After markets closed on Friday, Chinese officials released a surprisingly strong manufacturers purchasing managers index for March suggesting that growth in the world’s second largest economy might have turned. The near term improvement will buoy sentiment but will have required strong monetary measures for a still modest return leaving some doubt about its sustainability as well as worries about longer term financial system instability.
The gold price has not reproduced its historical leverage to rising bond prices in part because the prior recovery had possibly run too far ahead of changes in financial markets. The gold price action also confirms that prior price peaks remain a headwind to future gains. A 1980s-style trading range is a strong possibility.
Sector Price Outcomes
52 Week Price Ranges
The Steak or Sizzle? blog LINK contains additional commentary on the best performed stocks in the sector and the extent to which their investment outcomes are underpinned by a strong enough value proposition to sustain the gains.
Equity Market Conditions
Resource Sector Equities
Interest Rates
Exchange Rates
Commodity Prices Trends
Gold & Precious Metals
Nonferrous Metals
Bulk Commodities
Oil and Gas
Battery Metals
Uranium
