If ever there was a good reminder to look beyond the noise of daily ASX share price swings, the past few days have delivered it.
Volatility returned with a vengeance to global share markets. And the S&P/ASX 200 Index (ASX: XJO) was no exception.
From last Wednesday, 27 January, through to yesterday's late morning low the ASX 200 fell 4.4%. Since then it's gained 3.4%, including today's 1.3% intraday rise.
Just as in US markets, where the tech heavy Nasdaq Composite (NASDAQ: .IXIC) index led the charge higher (gaining 2.6% Monday), ASX tech shares are again outperforming.
At time of writing, the S&P/ASX All Technology Index (ASX: XTX) – which tracks 50 of Australia's leading and emerging technology shares – is up 4.0%.
The usual share market culprits… and some new ones
What do long-term investors, patiently watching the share prices of their holdings yo-yo up and down, have to thank for the renewed volatility?
Some of the drivers are the same forces that have roiled markets on and off for the past 11 months. Those include the news flow around coronavirus variants and vaccines, expectations of future rounds of government stimulus, and concerns inflation could see central banks raise rates sooner than promised.
In recent weeks we can add the so-called Reddit army to those destabilising forces.
That's the collective of retail investors linked through Reddit's WallStreetBets app who've been targeting institutional short sellers. You know, the amateur investing crowd who helped drive the GameStop Corp (NYSE: GME) share price up 1,914% in 2021 through to last Wednesday's all time highs.
Speaking of volatility, GameStop shares gained 135% on Wednesday, fell 44% on Thursday, gained 68% on Friday, and lost 31% yesterday (overnight Aussie time).
Dizzy yet?
Which gets us back to why buy and hold investors would do well to ignore these daily swings. If you measure your investment horizon in years, what happens this week or next is likely to be a forgotten memory by the time you need or choose to cash in your shares.
If you've got the stomach and capital to risk on day trading, on the other hand, take another look at the GameStop share price moves over the past 4 trading days. If you managed to guess right, and bought low and sold high, you could have made some quick, tidy profits. But if you guessed wrong you could have lost almost half your investment in a single day.
With that said, what can investors expect for the year ahead?
Macquarie's ASX earnings outlook
If you strip away the shorter-term forces moving share prices, the core issue investors should focus on is company earnings. That includes past, present, and future earnings projections.
With earning's reporting season upon us here in Australia, Macquarie offers an upbeat outlook (quoted by the Australian Financial Review):
We remain positive on the earnings outlook, supported by fiscal stimulus, strong commodity prices and the view that vaccines drive stronger growth over calendar year 2021.
Net EPS [earnings per share] revisions have now been positive for the last 5 months. Revisions have not been this positive since the commodity boom (2004 or 2005).
Two ASX 200 shares for 2021
Macquarie listed a number of shares its analysts favour for 2021, some of which have been heavily sold off during the pandemic.
One of the shares its analysts tip is Telstra Corporation Ltd (ASX: TLS). The Telstra share price is up 4.7% so far in 2021. Over the past 12 months, however, shares remain down 18%.
Telstra pays an annualised dividend yield of 5.1%, fully franked.
If it's dividends you're after though, Macquarie's analysts point to some of the leading ASX miners, including Fortescue Metals Group Limited (ASX: FMG). The Fortescue share price is down 9% in 2021. Over the past 12 months, though, Fortescue has been a star performer, seeing its share price soar 105%.
Fortescue pays an annualised dividend yield of 8.1%, fully franked.
