ASX 200 posts fourth monthly gain despite Friday profit-taking

Australian shares closed out a fourth straight month of gains on Friday, though the final session's rally largely evaporated as investors booked profits ahead of a period that has historically been weak for the exchange.

The ASX 200 had been tracking higher through the session before sellers stepped in during the afternoon, erasing most of the day's advance. The index still managed to secure a monthly gain, extending a winning streak that began in April.

Traders pointed to typical end-of-month positioning as the driver of the afternoon reversal, with fund managers and institutional investors rebalancing portfolios ahead of the new month. The final day of May has historically seen elevated volatility as these adjustments take place.

The weakness came despite a broadly positive session for global equities overnight, with Wall Street closing higher on Thursday. The S&P 500 rose 0.3% and the Nasdaq added 0.4%, supported by gains in technology stocks.

Mining stocks were among the hardest hit in the afternoon sell-off, with BHP Group and Rio Tinto both giving up earlier gains. BHP closed flat for the session while Rio Tinto slipped 0.2%. The energy sector also weakened, tracking a decline in crude oil prices.

The ASX 200's four-month winning streak has been built on a combination of easing inflation data, expectations that central banks are nearing the end of their rate hiking cycles, and resilience in corporate earnings. The index is now up roughly 8% since the start of the year.

June has historically been a weaker month for Australian equities, with the ASX 200 recording an average loss of 0.8% over the past decade. Traders said the profit-taking on Friday reflected that seasonal pattern as much as any specific catalyst.

"It's just people taking a bit off the table after a strong run," one Sydney-based trader said. "June is typically quiet, so locking in some gains now makes sense."

The Australian dollar was little changed on the session, trading around US$0.6640. Bond yields edged lower, with the 10-year government bond yield falling 2 basis points to 4.15%.

Investors will now turn their attention to the Reserve Bank of Australia's next policy meeting on June 18, where the central bank is expected to hold the cash rate steady at 4.35% for a fourth consecutive meeting.

Data due next week includes first-quarter GDP figures, which will provide the clearest picture yet of how the economy is faring under elevated interest rates. Economists surveyed by Bloomberg expect the economy to have expanded by 0.3% quarter-on-quarter, a slight acceleration from the 0.2% pace in the fourth quarter of 2023.

A stronger-than-expected GDP print could revive speculation that the RBA may need to raise rates further, though markets are currently pricing no change through the end of the year. A weak number would reinforce expectations that the next move will be a cut, though that is not expected before early 2025.

Friday's session also saw mixed performance across the banking sector. Commonwealth Bank rose 0.3%, while Westpac and ANZ both slipped 0.1%. National Australia Bank was flat.

Healthcare stocks were among the few bright spots, with CSL Ltd gaining 0.8% and Resmed adding 1.2%. The sector has been a beneficiary of the risk-on tone in markets, with defensive names seeing renewed buying interest.

The ASX 200's four-month winning streak is the longest since a five-month run that ended in February 2023. Whether it extends to five will depend on how the June seasonal weakness plays out against the broader bullish momentum that has carried the market higher since April.