The Overnight Report: Netflicked

This story features RAMSAY HEALTH CARE LIMITED, and other companies. For more info SHARE ANALYSIS: RHC

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

By Greg Peel

In Rude Health

A solid session on Wall Street already had the ASX fired up for a positive day yesterday but the real fillip for a 60 point gain in the ASX200 in the first 45 minutes was a private equity bid for Ramsay Health Care ((RHC)).

It is an opportunistic bid, given the international private hospital owner has struggled since the beginning of covid with elective surgery bans, high costs and staff shortages. We recall Sydney Airport was taken out by a fund consortium having also been a clear covid loser.

If these large caps keep disappearing from the market the concentration of rocks and mortgages for the ASX200 is only going to get more pronounced.

Ramsay closed the day up 24.2% and early on anything health was hot to trot as investors wondered who might be next. The excitement faded as the day progressed but the sector ultimately closed up 2.6% within a flat close for the index.

The balance was provided by a -0.6% fall in energy, which was not too bad compared to a -5% fall in oil prices overnight (I suspect traders are learning not to jump at daily volatility shadows), and a -1.5% fall in materials.

The fall in materials came as Rio Tinto ((RIO)) fell -2.8% on the release of its quarterly report, which showed a fall in shipments due to delays in expansion projects. BHP Group ((BHP)) fell -1.6% in sympathy.

In testament to the above, not only did energy and materials counter healthcare, every other sector closed in the green, including 1%-plus gain for both consumer sectors, while the banks rose only 0.15%.

The gain in the consumer sectors came as Bega Cheese ((BGA)) warned food inflation is only going to intensify from here thanks to the war and Chinese lockdowns. Inflation is good, up to a point, for staples as we’re still going to pay up for essentials like cheese and Vegemite. Bega rose 1%.

For discretionary, Wesfarmers’ ((WES)) 1.7% gain was the primary driver, but the travel stocks continue their comeback. If you’re flying Qantas Airways ((QAN)), best to be headed for a nudist camp.

As is proving the case with the energy sector, investors are also learning not to get too hyped up about day to day movements in the Nasdaq with respect to our technology sector. Yesterday it rose only 0.6% to a 2.2% gain in the Nasdaq overnight.

We’ll see how it copes today.

Sold Down Stream

With the benefit of hindsight it was a no-brainer. Hands up who didn’t sign up to Netflix during one or other of the lockdowns (actually, I’m one). Now we’re all back out on the streets, except in China where Netflix has no service, we’re not binge watching tele anymore.

After posting its first drop in subscriptions in ten years, including the Russian shutdown, and guiding to more falls to come, Netflix lost -35% last night, having already been down -50% from its highs. All streaming services thus ran scared, most notably Disney (Dow), down -5.6%.

Netflix also moaned about household sharing of passwords, undermining subscription demand.

You know who you are.

The Netflix result did not only impact on streaming, it forced investors to rethink all high-multiple growth stocks – not just the no-profit-yet stocks, but the mega-caps as well. Meta (Facebook) was a case in point, falling -7.7%, (recalling it dropped -25% on the day of its last earnings report). FANG? Pretty toothless now.

There was also a read-through to short term credit companies, such as BNPL, and payment companies, such as PayPal. There has already been growing concern of delinquencies in the industry on the back of surging inflation, also leading to an expected pullback in consumer spending, and a Netflix subscription is but one example of what discretionary spending cash-strapped consumers can sacrifice.

Block fell -8.8%. The overall -1.2% fall in the Nasdaq came even as the US ten-year yield fell back -7 points to 2.84%.

So why was the Dow so defiantly strong?

On earnings results, IBM jumped 7.1%, household goods giant Proctor & Gamble gained 2.7% and United Health 1.6%. These companies have been around since time immemorial. The moves may not seem like much, but these are Dow components (big).

Similarly, while not reporting, Home Depot (US Bunnings) rose 2.4% and pharmacy chain Walgreens Boots rose 2.1%.

We might sense a theme here. As Wall Street continues to re-evaluate the new world growth names in a post-covid world, the plodders, some of whom were around in Grandad’s day, are the new black.

Commodities

Nothing to see here, other than the Aussie strangely shooting up a full percent to US$0.7452. The US dollar index did fall back -0.6%, but it looks like the cowboys might be short again.

Today

New Zealand reports December quarter inflation today. Those were the days.

It’s a big day for quarterly reports, with BHP Group, Evolution Mining ((EVN)) and Santos ((STO)) representing resources, and Brambles ((BXB)), Challenger ((CGF)) and Stockland ((SGP)) the rest.

The Australian share market over the past thirty days…

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