Even if Wall Street gains another 10 per cent, the top heavy ASX is unlikely to follow it higher


Wall Street has just put the February stock market correction behind it.

And given, on average, corrections happen every year or so, you’d be forgiven for thinking it’s plain sailing ahead for the stock market.

That’s what one person thinks. According to CFRA strategist Sam Stovall, the stock market often, though not always, continues higher after overcoming a correction.

A Marketwatch article says he recently wrote to his clients saying history says the S&P 500 could advance another 10 per cent from its previous high.

As Wall Street goes, so does the ASX, at least on the downside.

The upside is a different story. Earnings season is about to go into full swing,  something that will determine the fate of shares at the individual level.

But collectively, mining shares aside, because many of the ASX blue chip shares are struggling to grow profits, I’m expecting the US sharemarket to out-perform the ASX. It’s why my one size fits all portfolio has a 40 per cent weighting to the Vanguard Index International Shares Fund.

That said, as ever, the ASX will have its hits and misses.

In February, a miss from WiseTech Global (ASX:WTC) saw its share price hammered. A hit from Altium Limited (ASX:ALU) saw its share price jump 26 per cent higher on a single trading day.

Most eyes will be on the ASX blue chip shares, starting with Commonwealth Bank of Australia (ASX:CBA). I’m not expecting fireworks from the CBA share price, given expectations of flat earnings, a flat dividend, and a flat outlook.

Stovall is quick to say there’s no guarantee Wall Street will advance another 10 per cent from here.

And who knows, CBA could surprise on the upside, given expectations are pretty modest. Given their high level of recurring revenue, their huge competitive advantage, and the tailwinds they’ve had for so long in terms of rising house prices and consumer lending, the big four banks are cash machines.

But the odds are are against a massive break out in CBA shares. As they are for any number of the traditional blue chip stocks, much to the chagrin of value investors.

Their day will come, but not until they are trading at dirt cheap valuations, something that can’t be said of CBA shares, and many other traditional ASX blue chips.

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au