Artificial Intelligence (AI) has often been the market’s focus over recent years, and never more so than yesterday after Nvidia (NVDA US) posted its second-quarter results. In summary, the world's most famous AI play produced US$30 billion revenue in the quarter, its adjusted earnings per share (EPS) rose by 152%, and it is planning a US$50 billion share buyback, but the stock still fell over 6%, with “great” not being good enough after the stock's parabolic gains over the last year.
The FANG+ Index is a good gauge of the health of the aptly named “Magnificent Seven” stocks, which have lifted US indices higher over the last twenty months. The recent ~21% sharp pullback illustrates that even the most robust pockets of the market retrace when they get ahead of themselves, i.e. positions become “crowded” leaving fresh buying scarce at best. We don’t believe the advance is over, but it's maturing, which is likely to see the weaker members start/continue to struggle.
The ASX200 surrendered early gains on Tuesday to close down -0.2%, with over 60% of the main board ending the session lower. It was a rare day of weakness for the banks and strength in the resources, but as we often say, the market can't go up without the banks. The “Big Four” slipped an average of -0.7% while Bendigo (BEN) tumbled -4.2% following their average FY24 result on Monday, i.e. after surging over +30% year-to-date, the market expected more.
Fed Chair Jerome Powell spoke at the Jackson Hole Economic Symposium on Friday night, and said all the right things, reaffirming the markets' belief that interest rate cuts are just around the corner, but importantly, also highlighted confidence in the economy, which allayed some recent concerns about a potential recession.
Yesterday, Whitehaven Coal (WHC) announced that Nippon Steel and JFE Steel had bought 30% of their recently acquired Blackwater Met Coal Mine for $US1.1bn, a very useful and well-received cash injection. Interestingly, Japanese giant Nippon Steel said the Queensland government’s coal royalties grab influenced its decision to spend over $US1 billion buying the stake amid rising concerns over supply security, although such concerns haven’t yet been reflected in the coal price, which is trading at 2-year lows. They are understandably concerned that the QLD government's royalty hike and increasing headwinds around funding will discourage future investments. Politicians and financers are playing an important role in the future evolution of our coal industry, not necessarily a healthy mix
Reporting season is keeping MM busy, while the “buy the dip” mentality continues on the index level. Wednesday saw the ASX200 deliver its 9th consecutive positive session, its longest winning streak in almost a decade. The market reversed early losses to be up +0.16%, closing back above the psychological 8,000 level, with further gains likely today. A recovery in the heavyweight miners was the main driving force outside of reporting season, e.g. Mineral Resources (MIN) +5.2%, Fortescue (FMG) +4.1%, and BHP Group (BHP) +1.6%. The iron ore names aren’t out of the woods yet, but the recent news flow has undoubtedly been negative enough to deliver their nadir.
Equities took a rest overnight following their stellar recovery; the UK FTSE -1% was the underperformer in Europe compared to the EURO STOXX 50 -0.3%. The US S&P500 slipped just -0.2%, snapping its 8-day winning streak in a very quiet fashion. A period of consolidation into Friday's Jackson Hole Economic Symposium is likely as the market waits on Jerome Powell's speech, which is likely to provide a deep insight into the Fed's current outlook for interest rates. A cut in September is almost a certainty, though comments about future cuts is what will drive markets.
The ASX200 trod water on Monday, although there were ongoing clear signs of “buying into weakness” with the main index reversing losses to extend its recent recovery – the Australian market is only 2% below its all-time high, having quickly dismissed the recent market jitters courtesy of the Yen Carry Trade unwind and a potential US recession. As we often trot out at MM, the market doesn’t go down without the banks. Following Westpac’s solid Q3 update, we saw CBA again post fresh all-time highs and WBC fresh post-COVID highs with the “Big Four” up an average of +1.25% - the Banking Sector looks good, which by definition suggests the ASX200 will be testing its all-time high over the coming weeks.
The index ended last week on the front foot, an impressive +4.5% above the month's low, although we haven’t embraced the bounce as enthusiastically as the US, where the S&P500 is now only 2% below its all-time high—what a difference a week makes! At this stage, markets are more comfortable that rate cuts may be delayed than a recession is in the offing. So far this month, the ASX200 is down only -1.5 %, with the Energy & Materials stocks continuing to weigh on the ASX. However, outside of China issues, valuations remain stretched, likely leading to elevated volatility whenever the sentiment vaguely sours.
The FANG+ Index is a good gauge of the health of the aptly named “Magnificent Seven” stocks, which have lifted US indices higher over the last twenty months. The recent ~21% sharp pullback illustrates that even the most robust pockets of the market retrace when they get ahead of themselves, i.e. positions become “crowded” leaving fresh buying scarce at best. We don’t believe the advance is over, but it's maturing, which is likely to see the weaker members start/continue to struggle.
The ASX200 surrendered early gains on Tuesday to close down -0.2%, with over 60% of the main board ending the session lower. It was a rare day of weakness for the banks and strength in the resources, but as we often say, the market can't go up without the banks. The “Big Four” slipped an average of -0.7% while Bendigo (BEN) tumbled -4.2% following their average FY24 result on Monday, i.e. after surging over +30% year-to-date, the market expected more.
Fed Chair Jerome Powell spoke at the Jackson Hole Economic Symposium on Friday night, and said all the right things, reaffirming the markets' belief that interest rate cuts are just around the corner, but importantly, also highlighted confidence in the economy, which allayed some recent concerns about a potential recession.
Yesterday, Whitehaven Coal (WHC) announced that Nippon Steel and JFE Steel had bought 30% of their recently acquired Blackwater Met Coal Mine for $US1.1bn, a very useful and well-received cash injection. Interestingly, Japanese giant Nippon Steel said the Queensland government’s coal royalties grab influenced its decision to spend over $US1 billion buying the stake amid rising concerns over supply security, although such concerns haven’t yet been reflected in the coal price, which is trading at 2-year lows. They are understandably concerned that the QLD government's royalty hike and increasing headwinds around funding will discourage future investments. Politicians and financers are playing an important role in the future evolution of our coal industry, not necessarily a healthy mix
Reporting season is keeping MM busy, while the “buy the dip” mentality continues on the index level. Wednesday saw the ASX200 deliver its 9th consecutive positive session, its longest winning streak in almost a decade. The market reversed early losses to be up +0.16%, closing back above the psychological 8,000 level, with further gains likely today. A recovery in the heavyweight miners was the main driving force outside of reporting season, e.g. Mineral Resources (MIN) +5.2%, Fortescue (FMG) +4.1%, and BHP Group (BHP) +1.6%. The iron ore names aren’t out of the woods yet, but the recent news flow has undoubtedly been negative enough to deliver their nadir.
Equities took a rest overnight following their stellar recovery; the UK FTSE -1% was the underperformer in Europe compared to the EURO STOXX 50 -0.3%. The US S&P500 slipped just -0.2%, snapping its 8-day winning streak in a very quiet fashion. A period of consolidation into Friday's Jackson Hole Economic Symposium is likely as the market waits on Jerome Powell's speech, which is likely to provide a deep insight into the Fed's current outlook for interest rates. A cut in September is almost a certainty, though comments about future cuts is what will drive markets.
The ASX200 trod water on Monday, although there were ongoing clear signs of “buying into weakness” with the main index reversing losses to extend its recent recovery – the Australian market is only 2% below its all-time high, having quickly dismissed the recent market jitters courtesy of the Yen Carry Trade unwind and a potential US recession. As we often trot out at MM, the market doesn’t go down without the banks. Following Westpac’s solid Q3 update, we saw CBA again post fresh all-time highs and WBC fresh post-COVID highs with the “Big Four” up an average of +1.25% - the Banking Sector looks good, which by definition suggests the ASX200 will be testing its all-time high over the coming weeks.
The index ended last week on the front foot, an impressive +4.5% above the month's low, although we haven’t embraced the bounce as enthusiastically as the US, where the S&P500 is now only 2% below its all-time high—what a difference a week makes! At this stage, markets are more comfortable that rate cuts may be delayed than a recession is in the offing. So far this month, the ASX200 is down only -1.5 %, with the Energy & Materials stocks continuing to weigh on the ASX. However, outside of China issues, valuations remain stretched, likely leading to elevated volatility whenever the sentiment vaguely sours.
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