The Overnight Report: Snap Out Of It

This story features GOODMAN GROUP, and other companies. For more info SHARE ANALYSIS: GMG

The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Greg Peel

Follow the Leader

US social media platform Snap reported earnings in the Wall Street aftermarket yesterday morning our time and was down -30% when the ASX opened. It thus stood to reason that all Australian listed social media platforms should tumble as well.

If we had any. Instead, investors just saw “tech” and sold down our tech leaders in the form of BNPL companies and anything else of a tech nature. Block ((SQ2)) fell -7.6%, Zip Co ((Z1P)) -5.4% and the sector overall closed down -3.0% on the day.

Fair enough. The Nasdaq was down -2.4% last night.

Back in the real world it was, as predicted, another otherwise dull session. But that’s not to dismiss the fact the banks (+0.3%) and real estate (+0.4%) — the latter thanks to a 1.5% rally for Goodman Group ((GMG)) — were the only sector winners on the day.

Outside of tech, communication services was the worst performer (-0.9%) as Telstra ((TLS)) fell -1.3%, while utilities continued to slide (-1.2%), likely on the low wage growth/high inflation hitting consumers story.

To that end consumer discretionary fell -0.4% and staples -0.8%. Industrials fell -1.0% on a -1.5% fall for Qantas Airways ((QAN)) after the airline bought a Byron Bay travel agent.

Tabcorp Holdings ((TAH)) slipped -80%, but only because it demerged its lotteries & keno business into The Lottery Company ((TLC)), which somewhat misleadingly shows as up 2981% on the day. Damn, missed that one. Actually if you do the maths, the two posted a slight net gain on the day.

Nufarm ((NUF)) fell -14.6% after Sumitomo sold its 15.8% stake.

All up, the ASX200 meandered along during the day going nowhere much, up until mid-afternoon when it actually posted the loss. The market is waiting for some sort of positive catalyst, not trusting Wall Street to provide it at this stage, and probably still waiting to see if Albo can get the troops across the line, with two seats left to conquer.

The market remains unsure heading into today as well, with the futures up 8 points following a mixed night on Wall Street. Snap clearly stole the spotlight, but there were further ructions in US retailers to ponder as well.

Another one bites the dust

Any debate about whether Snapchat is still relevant in a world in which the clock seems to be Tik-Toking on US social media platforms is one for the kiddies. The bottom line is in explaining its big miss on earnings, Snap warned the US economy has “deteriorated further and faster than anticipated.” Snap closed down -42%.

The company relies on online advertising revenues, as does Facebook, which fell -7.6%, and Google (-5%), Twitter (-5%) and Pinterest (-24%), to name a few.

The Nasdaq was down over -3% from the open, the Dow was down over -500 points and the S&P500 had yet again fallen below the -20% correction mark. But that correction mark continues to hold its ground as the floor in the 2022 sell-off, so the S&P again managed not to close below that level, the Dow came all the way back as investors sought out more traditional and defensive businesses, and the Nasdaq at least regained some ground.

Snap stole the spotlight last night, but it was not lost on Wall Street that apparel retailer Abercrombie & Fitch also posted a shocker, and fell -30%, echoing Target’s demise last week. The implication of both results is that the US consumer had been looking solid all year but by April had begun to worry about the rising cost of everything.

The rising cost of everything is one reason the likes of Target and friends posted big guidance misses with their results, but the other is these retailers have been caught out with too much inventory no one wants to buy. In short, they got it very wrong.

We all spent 2020 lounging about in trackie-daks, before being released to hit the stores once more in 2021, when everyone went nuts. Now sated, consumers have turned away from goods purchases and on to the services they were unable to access up to now, such as entertainment, travel and so forth.

That said, retail analysts insist consumer demand remains strong enough, it’s just that some retailers stuffed up. Witness Nordstrom, another well-known apparel retailer and “mall store”. It reported in the aftermarket and is currently up 9%.

Wall Street had already figured it out before the bell. Yes, the US economy is slowing, just as was expected after a surging in 2021 on the reopening theme. But some weak earnings results within the economy do not mean a recession in the second half of the year is a given.

Although the US ten-year bond yield did fall back -10 points to 2.76% last night.

And in a warning to us downunder, US new home sales fell -16.6% in April year on year on a combination of unaffordable prices meeting rising mortgage rates.

Commodities

Please note that due to yesterday’s LME feed problem, the above base metal price movements represent net moves over two sessions.

And they’re becoming rather mixed, as producer countries around the world respond to current conditions.

The gold price is being knocked back and forth by ongoing US dollar and bond yield volatility, while the oils appear to have come to a screaming halt.

As has the Aussie for now, little changed at US$0.7109.

Today

The SPI Overnight closed up 8 points.

The RBNZ holds a policy meeting this morning.

Here we’ll see March quarter GDP component construction work done.

The US is due numbers for durable goods orders, and the minutes of the last Fed meeting.

ALS Ltd ((ALQ)), Catapult Group International ((CAT)) and Fisher & Paykel Healthcare ((FPH)) report earnings today.

Alumina Ltd ((AWC)), Costa Group ((CGC)) and Dalrymple Bay Infrastructure ((DBI)) hold AGMs.

The Australian share market over the past thirty days…

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

All paying members at FNArena are being reminded they can set an email alert specifically for The Overnight Report. Go to Portfolio and Alerts on the website and tick the box in front of The Overnight Report. You will receive an email alert every time a new Overnight Report has been published on the website.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided. www.fnarena.com

FNArena is proud about its track record and past achievements: Ten Years On

Click to view our Glossary of Financial Terms