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Overseas equities fell away on Friday night as recession fears increased, with the EURO STOXX 50 -2.7% and German DAX -2.3% leading the declines. In the US, it was another brutal night, with the S&P500 plunging 1.8% and the Dow over 600 points after the jobs report sent investors running for cover. Some tech megacap names saw heavy losses during the day after Amazon’s 2nd quarter results sparked investor concerns about Big Tech’s blowout levels of artificial intelligence-related (AI) capital spending. The e-commerce giant slid 8.8% after missing analyst estimates and issuing a disappointing forecast.
A tough session for equities to end the week and after twice making new all-time highs the ASX200 finds itself up just +0.25% for the week, well under the psychical 8000 level after testing 8150 on Thursday morning. A heavy fall on Wall Street set the tone and as recession fears escalated after weak US economic data tipped the scales away from the heavily embraced “Goldilocks” view.
US equities endured a tough session on Thursday night as a new chapter was turned with rate cuts fully built into markets but fears of a recession are gaining momentum. The concept of a ‘hard landing’ has felt like a dormant beast, with bad economic news being welcomed by stocks because it stoked optimism about rate cuts; this has now changed, with traders now scarred that the Fed have been too slow cutting rates and a tougher economic reality is a real possibility. The bond market is already telling us that Jerome Powell et al. may be behind the curve. Not all stocks felt the selling, with Meta Platforms (META US) closing up +4.8% on stronger-than-expected 2nd quarter results and upbeat guidance.
A positive session for the ASX, though the best of it was seen early keying off a great move yesterday and positive flows in the US overnight, as the markets has quickly priced in the prospect of a rate cut in Australian this year, but probably more important, no further rate hikes. UBS changed their forecast this morning from a hike in August to no change, while Futures are now pricing a 63% chance of a cut before Santa arrives. In the US overnight, the Fed pretty much confirmed a September cut. In July the Fed said they needed to be more confident inflation was on the right track, overnight they said they ‘had’ more confidence that inflation was on the right track, laying the foundation for a move.
We are amending the Active Growth Portfolio Today
It took an almighty +1.75% surge on the 31st, but July has again delivered a stellar performance. For 2024, the seasonally strong month delivered an impressive +4.2% gain, eclipsing the average return over the last decade of +3%. We are excited about the market following yesterday’s CPI. Still, we will continue to focus on the stock and sector rotation, especially as August/September is historically the weakest seasonal period for stocks – the average decline over the last decade for these 2-months is -3.8%.
The ASX surged higher, bonds rallied (yields lower), the AUD fell and the RBA breathed a huge sigh of relief with inflation data coming in cooler than expected today, taking rates hikes off the table, and bringing back the probability of cuts this side of Christmas. Rate-sensitive stocks soared, though the buying was broad-based based with over XX% of the main board finishing in the black.
The ASX200 recovered strongly from an aggressive early morning sell-off on Tuesday to close down 0.5%, not a great result but far better than the earlier 1.2% drop. The index actually managed to end the session close to its intraday high as bargain hunters surfaced in most areas except for the resources—again! Following the placement of 100 million Fortescue (FMG) shares at $18.55, the iron ore miner fell over 10%, contributing almost a third of the ASX’s decline. When combined with BHP’s 53c drop, we had two major miners making up over 50% of the main board’s 36-point drop.
The market was lower today, though it recovered nearly 60 points from the lows so showed some backbone into weakness, with consumer discretionary stocks following their US peers higher, while Financials remained well supported.
US equities had a cautious overnight session ahead of this week’s major tech reports. Microsoft, Meta Platforms, Apple, and Amazon are likely to determine whether tech stocks can bounce back from last week’s declines. So far, with just over 40% of S&P 500 having now reported, according to FactSet, Q2 blended earnings growth is running at +9.8%, up ~100 bp from end of June. Blended revenue growth rate is +5.0%. In addition, 78% have beaten consensus EPS expectations, in line with one-year average, while 60% have beaten on revenue, below the 63% average. Earnings beats are being rewarded less than average and misses being punished more than average, a theme we have flagged.
