The Overnight Report: Hope You Didn’t Blink

This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies. For more info SHARE ANALYSIS: NAB

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

By Greg Peel

For what it’s worth…

The frustrating element to yesterday and what is lining up for today is that the S&P500 jumped 3.0% on Wednesday night on the Fed’s 50 point rate hike but the ASX200 only rose 60 points or 0.8% yesterday, but with the S&P down -3.6% overnight our futures are down -113 points or -1.5% this morning.

And the Wall Street plunge was yet again mostly about Big Tech.

Not that we should be perfectly aligned, but once again the sneeze-cold mantra is at work, along with stairs-elevators.

It would have been a better session for the ASX200 yesterday if the banks had not decided to sit it out. National Bank ((NAB)) tried to gee things up with an increased dividend accompanying its earnings result but still managed to fall -0.6%.

I suggested yesterday that investors had decided to take the risk on higher RBA rates improving bank margins enough to offset the likely increase in bad debts, but the Fed rate hike, with more 50s to come, perhaps has now prompted pause for thought. Although biggest lender, Commonwealth Bank ((CBA)), did manage a lone 0.7% gain.

It didn’t help the financials sector in general that fund manager Janus Henderson ((JHG)) fell -13.1% after announcing an -8% fall in assets under management at its AGM. Next worst individual performer on the index fell only -1.9%, being Life360 ((360)), which is on either winners’ or losers’ boards almost every day.

Otherwise, every other sector closed in the green, with resources again leading the way. Energy rose 2.0% and utilities 1.7% on overnight oil price jumps, driven by possible EU bans of Russian exports, while materials rose 1.5% despite some weakness among base metal prices.

Lithium was the star of the day, with Liontown Resources ((LTR)), Pilbara Minerals ((PLS)) and Novonix ((NVX)) taking the first three places in the index, rising 7.7%, 7.6% and 7.1% respectively.

Technology posted the biggest percentage move (+2.5%) on the Nasdaq bounce but that will today be but a dream. After an awful week of REIT yields being undermined by rising interest rates, real estate finally bounced 1.7%.

Consumer discretionary also saw a bounce of 0.9%.

As is often the case after wild swings on Wall Street, I could go on, but there’s little point.

What goes up…

There was apparently a clue in Wednesday night’s relief rally on Wall Street, after the Fed took 75 point rate hikes off the table, in that the buying was deemed to be of “low quality”, mostly driven by short covering. This implied that if the shorts were now covered, Wall Street began last night in a Wile E. Coyote position – a little too far past the cliff.

And so it was that while on Wednesday night every S&P500 sector and every Dow stock closed in the green, last night every S&P sector and every Dow stock closed in the red. The Dow rose 2.8% on Wednesday night and fell -3.1% last night. The S&P was up 3.0% and down -3.6%, and the Nasdaq up 3.2% and down -5.0%.

That last comparison is the standout, as last night was yet again mostly about Big Tech.

Once again the concept of the mega-caps being defensive went out the window. Apple and Microsoft – the two mega-techs in all three indices – fell -5.6% and -4.4%.

In the Nasdaq and S&P, Google fell -4.7%, Facebook -6.8%, Tesla -8.3% and Amazon -7.6%.

Amazon is now down -40% from its high.

Within the wider tech spectrum, stocks that were down -40-50% earlier this year are now down -60-70%. The big lockdown winners of 2020, such as Zoom, Peloton, Docusign and others, have now all but completed round-trips from pre-covid levels.

There are two historical comparisons currently being made – that of 1994 and of 2001.

1994 saw the last major Fed tightening cycle as then Fed chair Alan Greenspan tackled high inflation, and included not just 50 point hikes but also a 75. The pattern in 2022 is looking very like the pattern of 1994 for the S&P500 to date, which was one of similar swings and roundabouts in a generally weak year, before Wall Street started a fresh bull market.

That bull market was very tech-driven, and lasted until 2001 when the dotcom bubble burst. Australian tech investors beware. That year saw the Nasdaq lose -75% before bottoming.

There may be some solace that last night the Dow was down over -1300 points heading into the last hour, and the Nasdaq down -6%, before some late buying appeared. Given last night’s plunge netted out against Wednesday night’s rally to a great extent, the S&P500 did not post a new 2022 low last night, hence it remains inside its range.

Arguably the specific trigger for last night’s selling was the US ten-year bond yield, which having fallen slightly on the Fed decision to 2.92%, jumped 15 points last night to 3.07%. It seems 3% is the line in the sand.

The debate now has those believing Wall Street is oversold and hence Fed hawkishness is more than priced in, and those who warn the swift withdrawal of significant Fed support (higher rates and Fed bond selling) will simply be too much of a shock to the system.

Particularly for those younger types who have never been here before.

It might nevertheless provide some comfort to consider that because the tech sector is so influential on Wall Street, selling in those names triggers index selling and ETF selling that drags the non-tech sectors into the vortex, such that selling begets selling that may have no fundamental cause. Investors are forced to stand aside for now.

Commodities

Base metals remain on the weak side, but we’ll see what happens when China returns today. Iron ore is looking a little healthier.

Interesting that on a 15 point jump in the US ten-year and a 1% surge for the US dollar, gold is only down -0.3%, implying safe haven status is kicking in.

Bitcoin fell -8%.

Speaking of round-trips, the Aussie is right back where it was two days ago after falling -2%, to US$0.7113.

Today

The SPI Overnight closed down -113 points or -1.5%. Could be one of those Fridays.

The US April jobs numbers are out tonight.

Macquarie Group ((MQG)) reports FY22 earnings.

REA Group ((REA)), News Corp ((NWS)) and Block ((SQ2) have reported quarterly earnings.

Block fell -10% last night on Wall Street.

APA Group ((APA)) holds an investor day.

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