Overnight: Back To The Eighties

By Greg Peel

Messy Close

While the futures had suggested down -40 points yesterday morning the ASX200 got nowhere near that. Instead it was a choppy session in a relatively tight range that smacked of book-squaring and portfolio reshuffling at the end of a month.

The index closed up 133 points for the month.

It was the last day of result season and while there were the usual winners and losers on the day, they were more at the smaller end of market cap.

The reshuffling is evident in some sizeable sector moves in either direction netting out to not much movement in the index by the close.

The consumer sectors each fell -1.0% while energy rose 2.1%. Healthcare fell -1.3% while industrials and utilities each rose 0.9%. Financials fell -0.7% while materials only fell -0.2% despite Fortescue Metals ((FMG)) going ex its massive dividend. Fortescue closed down -7.7%. Property won the day in rising 1.4%.

Index winners on the day were earnings reporters EML Payments ((EML)), which offers pre-paid payments services (+6.6%) and Service Stream ((SSM)), which builds communications networks (+5.8%). The IT sector rose 1.2%.

Outside the index, online furniture/homewares retailer Temple & Webster ((TPW)) jumped 18% on its result.

Lithium miner Orocobre ((ORE)) was the biggest index loser on the day (-10.3%) after reporting on Friday. Fortescue was next worst.

Not much to read into yesterday’s action. Today it’s a new month, it’s a new day, it’s a new dawn etc.

But with the S&P500 down only -0.2% overnight, our futures are down a full -1% this morning.

Tina, Momo, Fomo and Yolo

Despite dipping on the final day of the month, likely on book-squaring, the S&P500 last night wrapped up its best August since 1986. For the Dow, it was 1984.

Apple’s 4/1 stock split came into effect last night, and the stock rallied over 3%. The split makes no difference to Apple’s weighting in the S&P or Nasdaq, but it does drop to one quarter of its previous impact in the Dow price average. Had it not been for Apple’s split, the two hundred point drop for the Dow last night would have been more like one hundred.

Tesla’s 5/1 stock split came into effect last night, and the stock rallied over 12%. Since announcing the split, and no other new news, Tesla has rallied 75% to become America’s seventh largest company. From its 52-week low to last night, the stock has risen over 1000%.

Last night Wall Street was back to the familiar theme of Big Tech outperforming and everything else drifting off. If you add Apple’s and Tesla’s moves with Amazon’s last night, you get more than 100% of the Nasdaq’s move (net of the stocks that fell).

Is it all smoke and mirrors?

Zoom reported its second quarter earnings last night after the bell. Earnings per share came in double consensus forecasts. Third quarter EPS guidance came in double consensus forecasts. Revenue increased in the quarter by over 350%, as user numbers rose by over 450%. The stock is up 16% in the aftermarket, and some 400%-plus year to date.

The concept of “there is no alternative” (TINA) to investing in equities is not a covid phenomenon. It’s been a factor on Wall Street ever since the Fed introduced QE in late 2008. With interest rates at zero, where else can you put your money?

The Fed’s reaction to covid has been to inject something like three times the amount of funds into the system than all Bernanke’s QEs put together. Since Wall Street bottomed in March, never more has TINA been the catch-cry. From TINA we get momo (momentum). As share prices rise, traders (most of them of the digital variety), play a ancient game of following the money. Momentum feeds upon itself.

As momo continues to drive the market higher, we then get FOMO (fear of missing out). Tesla’s market cap is now roughly equivalent to all of the top five automakers in the world’s (by sales) market caps put together. This year Tesla has so far produced around 370,000 vehicles. The Top Five have between them produced 44 million.

That’s momo and FOMO writ large. And as far as the millennials are concerned, who have dominated trade in a lockdown world of nothing better to do, it’s also a case of YOLO (you only live once).

Such a scenario was last seen in the late 1990s, and before that 1987. It was not so evident in 2007, as that was a comparatively very slow-moving crash. But at the risk of saying “this time it’s different” compared to the 2000 Tech Wreck, this time the leading Big Tech stocks have balance sheets the size of national economies, and cash flow coming out of their ears.

So when will it end?

September is historically, on average, the worst month of the year for Wall Street. Unless it’s an election year. Then it’s really bad.

But hey, if you sold in May and went away this year, how’d you be looking now?

Commodities

It was a public holiday in the UK last night so no LME.

Elsewhere, iron ore’s back in an upward trend, gold is hanging in there and unfortunately the Aussie is continuing its upward trend as well, up another tad to US$0.7374.

Today

The SPI Overnight closed down -58 points or -1.0%. Welcome to September.

With no more earnings results on the calendar we can now turn our attention to the Australian economy.

Today brings the June quarter current account, including the all-important, recession-combatting terms of trade. If tomorrow’s GDP result is a shocker, Josh will blame Dan. (Victoria went into lockdown in July).

The RBA meets today.

We’ll also see numbers for July building approvals and house prices, and around the globe we’ll see August manufacturing PMIs.

China reported its PMIs yesterday: manufacturing 51.0 versus 51.2 expected, services 55.2 versus 54.2.

An extensive list of ex-dividends today includes that of Woolworths ((WOW)).

The Australian share market over the past thirty days…