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.
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.
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.
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.
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.
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.
European markets bounced strongly overnight, with the EURO STOXX 50 closing up +1.45% as dip buyers waded back into US futures. US stocks rebounded following their worst week since April as investors embraced a stronger Democratic candidate. This enabled them to focus on the looming major earnings reports, with Tesla and Alphabet facing the music on Tuesday. The political news is unlikely to materially impact the market unless Harris can dent Trump's apparent significant lead, something Biden was unlikely ever to do. By the close, the S&P500 had risen the most since June, with the “Magnificent Seven” up around 2.5% while the small-cap Russell 2000 added +1.7%. Crowdstrike (CRWD US) fell another 13% as the magnitude of the weekend blackout hit home and, of course, the prospect of litigation on the horizon.
The Dow Jones tumbled over 500 points on Thursday night, although it's the only major US index on track to finish the week higher. As we enter the gauntlet of the seasonally weakest two months, there's room for further downside in the coming weeks, with markets trading at lofty valuations around all-time highs. With stocks already factoring in three rate cuts into January, there is room for disappointment. Ironically, Nvidia (NVDA US) and Meta Platforms (META US) bounced overnight after their recent sharp falls leaving the sellers to focus on the broad market.
Overnight saw mixed sessions in Europe and across US indices; the UK FTSE edged up +0.3% while the EURO STOXX 50 fell 1.1% as investors anticipate a period of growth-friendly policies and political stability in the U.K. under the newly elected Labour government. Conversely, France continues to deliver uncertainty. In the US, the rotation out of high-flying mega-cap tech stocks into the more rate-sensitive names continued, with the Dow rallying +0.6% while the NASDAQ closed down -2.9%. The Russell 2000 (small cap) index slipped 0.7%, ending its five-day winning streak, which had delivered an advance close to 12% as the market rally broadened out on rate cut expectations.
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.
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.
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.
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.
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.
European markets bounced strongly overnight, with the EURO STOXX 50 closing up +1.45% as dip buyers waded back into US futures. US stocks rebounded following their worst week since April as investors embraced a stronger Democratic candidate. This enabled them to focus on the looming major earnings reports, with Tesla and Alphabet facing the music on Tuesday. The political news is unlikely to materially impact the market unless Harris can dent Trump's apparent significant lead, something Biden was unlikely ever to do. By the close, the S&P500 had risen the most since June, with the “Magnificent Seven” up around 2.5% while the small-cap Russell 2000 added +1.7%. Crowdstrike (CRWD US) fell another 13% as the magnitude of the weekend blackout hit home and, of course, the prospect of litigation on the horizon.
The Dow Jones tumbled over 500 points on Thursday night, although it's the only major US index on track to finish the week higher. As we enter the gauntlet of the seasonally weakest two months, there's room for further downside in the coming weeks, with markets trading at lofty valuations around all-time highs. With stocks already factoring in three rate cuts into January, there is room for disappointment. Ironically, Nvidia (NVDA US) and Meta Platforms (META US) bounced overnight after their recent sharp falls leaving the sellers to focus on the broad market.
Overnight saw mixed sessions in Europe and across US indices; the UK FTSE edged up +0.3% while the EURO STOXX 50 fell 1.1% as investors anticipate a period of growth-friendly policies and political stability in the U.K. under the newly elected Labour government. Conversely, France continues to deliver uncertainty. In the US, the rotation out of high-flying mega-cap tech stocks into the more rate-sensitive names continued, with the Dow rallying +0.6% while the NASDAQ closed down -2.9%. The Russell 2000 (small cap) index slipped 0.7%, ending its five-day winning streak, which had delivered an advance close to 12% as the market rally broadened out on rate cut expectations.
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