ASX feeding frenzy as US lets loose with stimulus

Retail investors have been riding the recovery with a new generation of day traders appearing on the scene since the depths of the local lockdown in March. Picture: AAP

The US has moved the “whatever it takes” approach on market support to a whole new level and traders can smell it, buying just about anything on the ASX on Tuesday where every single stock on the S&P/ASX 200 flashed green.

Indiscriminate buying pushed the market up 4 per cent in a single session with “growth” stocks - typified by the buy now, pay later brigade - powering ahead.

We have very little visibility on earnings at our biggest companies. We have dividends dropped in a range of blue chips. We are, in fact, in the middle of a recession, but a stimulus does what a stimulus does.

Shares automatically move higher and the price of such action remains a problem for another day.

Australian investors barely had time to digest the extraordinary decision by the US Federal Reserve to begin buying individual corporate bonds when news broke of the Trump Administration mulling a new $US1 trillion ($1.44 trillion) stimulus plan.

The Fed has been testing the waters until now restricting its corporate bond market support to the buying of exchange traded funds where at least the support did not cherrypick companies.

Individual investors will already know there is a gulf between the government bond market and the corporate bond market where risk is elevated - consider the difference between government bonds and, Virgin Airline bonds.

Put simply, the market might celebrate as the US moves to lend directly to the private sector, but this latest action moves the Fed up the risk ladder.

This is going to be a very volatile period as market levers get moved every time reality threatens to intrude on rising share prices - the volatility is fierce.

Tuesday’s 4 per cent lift was the biggest one-day rise in two months, yet it only brought the ASX back to where it was last Thursday morning after the dismal sessions at the tail end of last week.

Many institutional investors have withdrawn from the market, building up cash holdings as they await another major sell-off.

Meanwhile retail investors have been riding the recovery with a new generation of day traders appearing on the scene since the depths of the local lockdown in March.

For long-term investors, the elevated volatility is a constant reminder that this sharemarket recovery will not be trending in a straight line, but it offers the promise of higher returns than almost any other asset class.

Further corrections are certain and may well be a regular feature for the rest of the year, however some of the world’s biggest investors believe those who stay in the market will be the ultimate winners.

Michael Wilson, the lead equity strategist at Morgan Stanley, was one of the first major names in the global market to “call” the share market rebound.

A new note from Wilson and his team released this week said: “We maintain our positive view for US sharemarkets because it’s early in a new economic cycle and bull market. Last week’s correction was overdue and likely has another 5-7 per cent downside. It’s healthy and we are buyers into weakness with a small/mid-cap and cyclical tilt.”

Close up on the ASX on Tuesday, share buying was hottest among technology stocks and miners: Afterpay jumped by 10.5 per cent, EML Payments gained 11 per cent, WiseTech put on 6 per cent.

Top industrials moved higher in a broad range - Lendlease and Aristocrat Leisure both rose 8 per cent while Ampol (formerly Caltex) gained 6 per cent.

Banks moved broadly ahead of the market with ANZ the strongest putting on 4.5 per cent.

Oil Search was 8.5 per cent higher and Rio Tinto rose 3 per cent to again touch the $100 mark through the day.

Viva Energy picked the right day to offer the market a profit upgrade - it shot ahead by 15 per cent.