Insights from the Trail - 3/2/23
In markets this week –
US stocks rallied for a third day overnight. Meta’s biggest surge since 2013 definitely helped that. Thursday also saw the highest volume day in the US since early December, with volumes up over 30% on the 20 day average. Three dovish central bank decisions (and commentary) in less than 24 hours also fuelled the fire (Fed, ECB, and BOE).
It’s been a strong start to 2023. And it bodes well for the year ahead. According to Jefferies, of the five instances in which the S&P gained more than 5% in January after a negative year, the benchmark index rose 30% for the year on average.
The trade ministers of Australia and China will hold a virtual meeting next week. The meeting between China’s Wang Wentao and Australia’s trade minister, Don Farrell, will be the first between the commerce and trade ministers of both nations in three years. Canberra has two complaints at the World Trade Organization against China's tariffs on Australian wine and barley, and is watching to see whether Beijing lifts unofficial trade blockages on other Australian exports, including lobsters and meat.
Three other things that got the team talking this week -
The Australian High Conviction Fund initiated a position in Dominos in Q4 2022. We expect Dominos to benefit as budget constrained consumers trade down to its affordable product. We also expect Dominos to take market share given they are best-in-class operators and therefore better positioned than their competitors to deal with the inflationary challenges facing the sector. What we didn’t expect was for one of our analysts to come back from their holiday in Japan most excited about updates on their menu items. It seems Dominos has an extreme customer focus in the country. See descriptions below:
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2. The report cards are coming in…
Global reporting season rolls on. And interestingly earnings misses have been resulting in outperformance so far. We also saw a stat from Evans earlier in the week that companies that missed expectations so far this reporting season have underperformed by just 1.7%, which is the least negative reaction over the last eight quarters.
3. The power of optimism…
Who needs to hedge the downside when Powell has learned to pivot! The cost of downside puts is at a 2-year low, and short interest across stocks and ETFs remains low. Gavin Baker found a good way to summarise the market's emotions currently.