17 March 2025 | Weekly Snapshot

Did you know?

The below chart shows the countries with whom the US has the largest trade deficits and surpluses. If a new world order is unfolding, China and the EU will feel the largest impacts. Interesting to see that smaller countries such as Vietnam are also beneficiaries of a large US trade deficit.

Market Movements

The ASX was down 2% last week with tech stocks (5% lower) leading the downside. Pro Medicus (PME) was down 7.8% last week and typifies the valuation-led sell-off. PME was a market darling of 2024 but is expensive on backwards looking valuation metrics (200x price-to-earnings ratio). Defensive sectors such as utilities (up 2.6%) and Consumer Staples (up 2.4%) provided support amidst the downside.

The S&P 500 dipped into correction territory is down about 10.1% since its Feb 19 high. The technology-heavy Nasdaq was down about 14% at its lows last week. Despite the sharp pullback in U.S. stock markets, as was seen in the ASX, there have been areas that have performed better and are even up for the year. Within U.S. equities, value and cyclical sectors have outperformed tech and AI stocks. Bonds have outperformed stocks broadly this year thus far as investors looked for safety. Many international stock markets, including Europe and China, have been up 8%-10%. Market performance this year underscores the value of diversification in investments. Those investors with diversified or balanced portfolios have seen relatively better returns this year so far.

Why has the US market corrected 10%?
The recent correction in U.S. equities is driven by growing recession fears. But how much of this risk is already priced in? There could be several ways to measure this. One of which being valuations, which remain elevated in the USA and hence further downside potential exists should a recession play out. Another broader measure for recession could be the movement in credit markets (below chart, refer US HY and US IG), where we are seeing low levels of recession probabilities (approx. 12% of less). In contrast, the same chart shows that the cyclically sensitive small-cap index implies a 50% probability of recession, while the S&P 500 suggests around 35%. This divergence isn’t new; bond markets have remained relatively calm in the face of recessionary fears over the last two years and were eventually correct. However, this is an imperfect measure of recession risk. While we recognise the slowing growth profile of the U.S. economy, there are also pockets of strength it looks too early to call for recession. We also face multiple geo-political unknowns (including Tariffs, Russia/Ukraine) that could swing the market outlook in both directions.

Portfolio Movements

Orica updates capital allocation framework – Announces $400M buyback

• At their investor day presentations, Australian explosives giant Orica provided an updated capital management framework which included a buy back up to $400 million, reflecting the company’s confidence in its outlook.
• Chief Executive Sanjeev Gandhi said “We have continued to deliver consistent profitable growth and improved cash flows, supported by strong demand for our innovative products, technologies and services across the global mining and civil infrastructure value chains,”
• It has been nearly a decade since Orica bought back shares. The company has been expanding and diversifying its operations in an overhaul that included eight acquisitions in four years, as it sought to grow beyond its core blasting operations in specialty chemicals and digital technologies.

Adobe reports record Q1 results

• Computer software company Adobe reported a record Q1 last week.
• Q1 EPS of $5.08 ex-items was ahead of the $4.97 expected, although FY the EPS guidance of $20.20-$20.50 ex-items midpoint looked a tad below the $20.39 estimate.
• “Adobe’s success over the next decade will be driven by customer-focused innovation and new offerings for creators, marketing professionals, business professionals and consumers,” said CEO Shantanu Narayen. “Adobe is well-positioned to capitalize on the acceleration of the creative economy driven by AI”
• Adobe offers a wide range of programs from web design tools, photo manipulation and vector creation, through to video/audio editing, mobile app development, print layout and animation software,
• Share were off 12% on the result

AIA Group reports FY results – Ups dividend and announced buyback

• AIA Group Limited has reported FY results last week. Full year OPAT of $6.61B looks like slight miss on the $6.68B expected although total weighted premium income of $ 41.40B is ahead of the $41.25B expected.
• The company will increase in the final dividend by 10% and a $1.6B share buyback was also announced.
• AIA are the largest publicly traded life insurance group in the Asia-Pacific region.

The Week Ahead

• Monday: USA Retail Sales Month on Month (MoM) is expected to show a gain of 0.6% in February compared to the -0.9% fall in January, while the Empire Manufacturing Index is expected to fall -2.0% in March compared to the 5.7% rise in January. China Industrial Production expected to rise 5.3% Year on Year and Retail Sales 3.8% YoY
• Tuesday: USA Housing Start are expected to be 1.381m in February up from 1.366m in January, while Building Permits are expected to have eased in February to 1.45m from the previous reading of 1.473m
• Wednesday: USA Industrial Production MoM is expected to show a rise of 0.2%, slower than January’s reading of +0.5%
• Thursday: USA the FOMC Rate Decision is expected to remain in the current range of 4.25% to 4.50%, so no change from current range, Initial Jobless Claims expected to rise to 224,000 from 220,000 and Continuing Claims are also expected to edge higher to o1.888m from 1.87m. United Kingdom Bank of England is expected to keep its official interest rate at 4.50%. Australia Unemployment rate expected to remain unchanged in February at 4.1%
• Friday: USA Leading Index expected to show a -0.2% decline in February compared to -0.3% in January, Existing Home Sales are expected to have slowed in February to 3.94m from 4.08m in January