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Australian stocks flirted with record levels before fading to their second loss in nine sessions as the seasonal Santa rally flagged.

The S&P/ASX 200 peaked 13 points short of an all-time high in the first ten minutes of trade, then drifted downward. The benchmark ended the session near its low with a loss of 24 points or 0.32 per cent.

The broader All Ordinaries lifted its record to 7956.3, then dropped 27 points or 0.34 per cent.

Macquarie Group, Brambles and Newcrest were the pick of the market giants. Afterpay and Goodman Group led declines among growth stocks and bond proxies.

What moved the market

The market’s remarkable run across the holiday season briefly carried it towards fresh heights before sellers spoiled the party. At this morning’s peak, the ASX 200 had put on 328 points or 4.5 per cent since the Monday before Christmas.

Students of the market would know the period traditionally covered by the “Santa rally” ended in the US overnight, heralding a return to more sober trade. The steady return of institutional traders to the market is likely to inject a dose of hard-nosed reality into proceedings.

A sharp rise in interest rates sent tremors through US growth stocks. The Nasdaq Composite sagged 1.33 per cent as traders sold companies whose valuations were most vulnerable to increased borrowing costs. Lenders and reopening plays helped lift the Dow 0.59 per cent.

“The so-called Santa Claus Rally officially came to an end in the US stock market on the second trading day of 2022 despite new year optimism in some stocks,” Kalkine Group CEO Kunal Sawhney said. “Investors were seen to be betting on the stocks that could harness the benefits of a robust economy while rotating out of technology stocks.”

A similar dynamic played out on the ASX after the yield on government debt hit a one-month high. The yield on ten-year Australian government bonds firmed three basis points. Macquarie, asset managers and the big four high-street lenders advanced. Tech stocks and bond proxies declined.

“Much like Wall Street, the information technology sector appears to be bearing the brunt of a recent rise in bond yields, prompting investors to shift away from growth stocks,” Kalkine’s Sawhney added.

With the Santa effect fading, attention may swing back to matters that dominated trade before the festive period: Covid rates, inflation and central bank policy.

“There are still plenty of issues for investors,” CommSec chief economist Craig James said. “Will other nations follow South Africa in witnessing a steep fall in case numbers from peak levels?

“Will inflation continue to be an issue? How quickly will central banks withdraw monetary stimulus? Will Omicron be replaced by yet another Covid-19 variant and how different will that be?”

Winners’ circle

Macquarie Group pushed further into record territory, rising 2.08 per cent. CBA gained 0.67 per cent, NAB 0.71 per cent, Westpac 0.83 per cent and ANZ 0.21 per cent.

A six-week high in crude oil kept the energy majors on the rise. Santos gained 2.57 per cent. Woodside Petroleum added 0.44 per cent.

“Oil prices rallied after OPEC+ decided to stick to its proposed increase in oil output from February 2022 as virus cases continue to soar,” Kalkine’s Sawhney said. “It seems OPEC+ is hopeful of a quick recovery in global energy demand as soon as virus fears subside,” he added.

Tentative new-year gains in iron ore lifted the big three domestic producers. Fortescue Metals put on 0.55 per cent, BHP 0.59 per cent and Rio Tinto 0.79 per cent.

Gold miner Newcrest added 1.27 per cent. Other heavyweight advances included Brambles +2.23 per cent and Transurban +0.14 per cent.

A contract win in Indonesia helped lift CIMIC 0.18 per cent. The construction company’s Asian subsidiary was selected to build a data centre campus in Jakarta. The contract will generate revenue of roughly $103 million.

Doghouse

Biotechs and other growth stocks retreated in the face of rising rates. Clinuvel Pharmaceuticals shed 7.47 per cent, Pro Medicus 9.69 per cent and Imugene 8.24 per cent.

BNPL – another sector where future earnings are subject to downward revision under higher rates – also came under pressure. Afterpay declined 4.01 per cent. Z1p Co fell 5.31 per cent.

In the tech space, Technology One dropped 6.04 per cent, Appen 4.94 per cent and Xero 3.8 per cent.

Also struggling were companies that provide an alternative to bonds when rates weaken. Goodman Group shed 3.44 per cent, CSL 1.82 per cent and Woolworths 1.59 per cent.

Premier Investments eased 4.41 per cent as its shares went ex-dividend.

Other markets

Asian markets deteriorated as the session advanced. The Asia Dow dropped 0.16 per cent, Hong Kong’s Hang Seng 0.85 per cent and China’s Shanghai Composite 0.81 per cent. Japan’s Nikkei was flat in late trade.

US futures softened. S&P 500 futures declined 12 points or 0.25 per cent. Dow futures lost 78 points or 0.2 per cent.

Oil pulled back from a near six-week high. Brent crude drifted down 23 US cents or 0.27 per cent to US$79.78 a barrel.

Gold inched up 40 US cents or 0.02 per cent to US$1,815 an ounce.

The dollar faded 0.12 per cent to 72.3 US cents.

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