Overnight: Take A Breadth

By Greg Peel

More of the Same

The new week opened yesterday where last week left off, with little in the way of new news or Wall Street movement allowing local investors to focus almost exclusively on the day’s earnings results. And there were lots of them.

While the ASX200 bungled its way to a positive close, again a modest increase for the index belies all the action in stocks and sectors within.

A standout 3.2% gain for the IT sector was nevertheless not actually about earnings results, rather updates from the BNPL sector. Afterpay ((APT)) announced the acquisition of an European company that will extend the Afterpay’s service into Spain, France and Italy. It rose 4.8%.

Zip Co ((Z1P)) provided monthly Quadpay (US) data showing volumes increased by 30% from June and noted customer numbers passed two million in August. It rose 13.0% and dragged smaller players up with it.

The gold medal for earnings results yesterday went to plumbing parts manufacturer Reliance Worldwide ((RWC)), up 17.8%, while hot on the heels was outdoor advertiser oOh!media ((OML)), up 17.5%.

In both cases one assumes analysts had feared the worst with regard virus impact, and found that managements had countered relatively well.

In third and fourth places yesterday were stocks that have recently reported, tanked, and then spun around on analyst upgrades. Heavily shorted Nearmap ((NEA)) jumped another 13.0% yesterday while TPG Telecom ((TPG)) rose 11.0%.

In the naughty chair were nib Holdings ((NHF)), down -5.8%, G8 Education ((GEM)), down -4.6%, and Alumina Ltd ((AWC)), down -3.6%, all on results.

From IT’s 3.2% gain we drop down to telcos among the sectors. It rose 1.7% on TPG while consumer discretionary rose 1.2% thanks to oOh!media.

Fortescue Metals ((FMG)) reported in line but handed out the goodies with another huge dividend, representing a 65% increase in FY20 dividends over FY19. Materials rose 0.6%.

The counter to the gainers were energy, down -1.0% after starring on Friday, property, down -0.5% after starring on Friday, and financials, down -0.5% as all the majors have now reported.

Today’s list of reporting companies is bigger again, but this time we actually do have a little macro influence to open the session with. The S&P500 last night broke through resistance, and our futures are up 39 points this morning, which is the biggest move in several sessions.

She’ll Be Right

On Sunday the US FDA approved the use of convalescent plasma, the antibody-rich component of blood taken from recovered covid patients, as a treatment for serious cases.

WHO warned last night that the plasma therapy, hailed (of course) by President Trump on Sunday, remains unproven and cautioned that there is “very low evidence” that it is safe and effective.

In a rush of excitement, Trump may order the FDA to grant the same type of approval for the AstraZeneca vaccine candidate, the FT reports, which is being developed by the University of Oxford. Anyone would think he was behind in the polls.

On even the slightest sliver of vaccine hope, Wall Street always takes another leg-up, as it did last night despite now already being above the February high.

But last night differed from recent times in that it was not a case of rotation out of growth and into the beaten-downs. The Nasdaq underperformed, but still performed. Apple still hit another new high, as did Amazon. Vaccine news, it seems, is good news for everyone.

Every S&P500 sector closed in the green.

The S&P broke through what had been staunch resistance at 3400 and the last half hour of trade saw a rush of buyers. It thus hit a new high, as did the Nasdaq, while despite last night’s outperformance, the Dow still remains some -4% shy. That’s largely due to Boeing.

Last night’s fun facts were that the level of Apple’s one month gain in market cap terms would make it the ninth biggest company on Wall Street, and that that gain of some US$360bn is equivalent to Apple’s entire market cap the day Tim Cook took over in 2011.

Apple did not make any significant announcements over the month.

The suggestion is that FAAMG is no longer a group of companies growing on technical innovation, which would make them risky prospects, but rather as cash flow machines that have established such a foothold in the world they cannot be usurped. They’re still innovating of course, but they are challenging not so much the equity market but the bond market in terms of safe returns, given the yield on bonds won’t return you anything much.

If you discount their massive cash flow expectations back to today on a risk-free rate that is as good as zero, the seemingly ridiculous PE multiples they are trading at actually aren’t as ridiculous after all.

So on it goes.

Commodities

Hurricane Marco was tracking through the Gulf towards the Texas/Louisiana coastline but has now been downgraded to a tropical storm and has slowed. But right behind it is Tropical Storm Laura, which is all but certain to rise to Hurricane status and arrive at the same location at around about the same time.

At this stage the WTI price reaction has remains somewhat subdued – more so than Brent – possibly because low demand means high inventory levels and hence diminished disruption to supplies.

The Aussie is a little higher at US$0.7165.

Today

The SPI Overnight closed up 39 points or 0.6%.

Another long list of earnings reporters today.

The US will see numbers for consumer confidence, house prices and new home sales.

The Australian share market over the past thirty days…