Archives: Reports
The ASX 200 is back testing the 8000 level with broad-based gains to kick off an important week. Local inflation data out on Wednesday the headline act, while Q2 earnings in the US increase and local reporting season slowly builds steam.
The last few weeks saw the S&P500 correct 4.9% and the tech-based NASDAQ 9.5%, including their worst day in almost a year on Wednesday following disappointing earnings from Tesla (TSLA US) while Alphabet (GOOGL US) broadly met expectations, yet shares still fell. The simple problem is expectations are high, plus of course we’ve gotten used to ‘beats’ rather than ‘meets’ from US tech, and if companies don’t deliver, hot/momentum money exits, often resulting in a dramatic unwind, which is amplified by passive ETF flows. The recent concerns around the AI and tech space will come further under the microscope this week when Amazon, Meta, Apple, and Microsoft report June quarter earnings.
The week started with the news that Joe Biden had finally stepped aside for Kamala Harris to run against Trump; the odds of a Republican victory have shortened, but the Don remains the clear favourite. However, 100 days is a massive time in politics; everyone is now talking about Kamala Harris having a chance of victory just two weeks after Trump was shot in Pennsylvania. On Wednesday night, US tech stocks unravelled as earnings missed lofty expectations, e.g. Tesla shares (TSLA US) plunged over 12% on weaker-than-expected results, including a 7% drop in auto revenue year-on-year and Alphabet (GOOG US) suffered its worst day since January, falling 5% after YouTube advertising revenue fell below expectations. The NASDAQ finished the week down 2.6%, while the Russell 2000 small caps gained 3.5%!
A solid session to end a tough week for stocks, though as we near the end of the July the ASX remains higher for the month, up nearly 2%, with a bullish start tapering off as large cap technology stocks experience recent momentum unwinding as the expectations around interest rates permeate through markets. US rates are about to come down, which has underpinned a reversal of recent themes with more economically exposed sectors and smaller companies starting to outperform the narrow cohort of technology stocks that have underpinned the markets performance over the past year. Trends are clearly changing, which creates some short term instability, however ultimately, this is positive for the broader health of the market, the ASX today breaking back up through 7900 as we work on creating a new trading range into August.
We are making several changes to the Emerging Companies Portfolio today, repositioning towards stocks we believe offer a better mix of quality and leverage to the themes we remain confident in.
MM has been adopting a more defensive stance over recent weeks, but it’s never enough when the index registers a triple-digit decline. However, as the ASX200 threatens to break cleanly below 7900, the psychological 8000 area is rapidly becoming a distant memory, although while it doesn’t feel like it, the ASX200 is still up +1.2% in July. While we are not index punters at MM, it is important to recognise the risks as/when they arise; as stocks enter the seasonally weak August and September, a pullback towards 7500 should not be discounted, i.e. another 4-5% lower. Hence, at this stage, we remain open minded about what comes next, in no hurry to migrate back up the “risk curve”, although we’re not as far down it as we’d like to be with our tilt towards commodities.
A tough day at the office with the ASX getting hit hard right across the board, with corporate updates mostly on the softer side. All 11 sectors finished lower with 82% of the main board in the red implying there were very few places to hide, with the market closing smack on its lows.
This week’s reports from Telsa & Alphabet are investors’ first look at Mega-cap Tech companies’ performance during the second quarter. Reports from these names are particularly interesting to Wall Street as this small cohort is responsible for most of this year’s gains. The overnight selloff doesn’t surprise MM as it was triggered by the perfect storm of an overbought market, high expectations for earnings and a seasonally weak period for equities. The local market is set to test 7900 support again today, but with the “glass half empty” attitude adopted by US stocks overnight, it feels 50-50 whether it will hold.
While the market ultimately ended down a touch, there was some interesting price action intra-day in certain sectors, with the retailers well bid early on only to give up gains, Gold stocks rallied defying a recent pullback in bullion, while many of the miners recovered nicely from early weakness i.e. some signs playing out that recent trends may be approaching an inflexion point.
Kamala Harris looks almost sure to be the Democratic candidate to take on Trump on November 5th. She will be a more challenging adversary than Biden, but the betting odds still say she has a mountain to climb over the coming months. We will look at what the “Trump Trade” means for some ASX names later this week, but one sector that continues to dive lower with Trump set to reverse the Biden administration’s new climate policies is the EV-related names. However, with Harris having a more than 40% chance to win in November, we thought the sector might see at least some short-covering, but it’s not been evident so far this week.
