Overnight: Sell Everything

By Greg Peel

Oh Well

There’s not a lot of point in poring over yesterday’s ASX action, as the S&P500 has dropped -3.5% overnight and our futures are down -2.0% this morning. We can be thankful that the futures aren’t suggesting we should match the S&P exactly, given the damage last night was done by Big Tech, but still, -2% looks a tad harsh on that basis.

We’ll see how we go.

We might note that the first big sell-off on Wall Street since June wiped out more than a week’s worth of gains, and that the Dow is now slightly down for the year.

I know – scary stuff.

In contrast, the ASX200 has moved very little in a month – a month of almost every-day new highs on Wall Street – yet our futures are suggesting down over -100 this morning. It’s just a sentiment thing; the old sneeze and cold analogy. The market will return to reason sooner rather than later, unless last night on Wall Street was a canary in an overbought coal mine.

Yet the Nasdaq could still fall another -10% and not really break its uptrend.

We might also note the Aussie has dropped a full -0.9% since yesterday, initially triggered by July trade data, which is otherwise supportive of our bigger companies.

The trade surplus plunged to $4.6bn from $8.1bn in June. Resources exports ex-gold fell -8.1% led by LNG (-17.5%). Service exports fell -12.1% mostly led by travel. Consumption imports rose 7.4% on a catch-up in autos, although auto imports are still down -33% year on year. Capital goods imports were up 18%, with fuel imports also catching back up (+11.5%).

It was all the other way around in Wednesday’s June quarter GDP result – another reason to dismiss that result as ancient history.

Anyway, yesterday the ASX200 saw uniform gains for six of eleven sectors of over 1%. Energy remained flat, and IT slipped a tad on ongoing fallout from PayPal’s incursion. Materials fell -0.5% because BHP Group ((BHP)) went ex, which really only leaves utilities (-0.3%) as the underperformer on the day.

The day’s winners and losers boards were nothing special, featuring usual suspects that go up and down just about every day in these times. The one exception is Kiwi gaming/hospitality company Skycity Entertainment ((SKC)), which reported earnings and jumped 7.4%

So will it be cool heads or panic on the local bourse today? Unfortunately it’s a Friday, which is typically a good day to sell to avoid having to fret over the weekend. Particularly if Wall Street really tanks tonight.

History suggests Wall Street typically tanks on a Monday, but Monday is the Labor Day long weekend in the US.

Just a flesh wound

Let’s rattle them off:

Apple (-8%), Microsoft (-6%), Salesforce (-4%), Amazon (-5%), Facebook (-4%), Google (-5%), Zoom (-10%), Tesla (-9%).

The first three are in the Dow. These were the drivers, but only two of 30 Dow stocks closed in the green (Amex, Verizon). All are in the Nasdaq, and all are in the S&P500 except Zoom and Tesla. All S&P sectors nevertheless closed in the red by varying degrees.

Thus it was largely a sentiment-based Sell Everything session, although there were some exceptions as bold traders saw an opportunity to pick up stocks like airlines and cruise lines, for reasons known only to themselves. The Dow was down over -1000 in the last half hour, so there was a little bit of dip-buying on the death.

While there was no specific trigger to suggest today is the day to sell – there never is – it is assumed the bulk of the panic came from the so-called Robinhooders – millennials who took up stock investing in the lockdowns, mostly on margin loans. It was a bit of a wake-up call, as no one had told them stock markets can go down as well as up.

Who knew?

If there were any trigger at all, maybe it was Donald Trump’s tweet on Wednesday night after the Dow rolled up through 29,000:

The Dow Jones Industrial just closed above 29,000! You are so lucky to have me as your President. With Joe Hiden’ it would crash

That’s not a typo, just Trump’s new nickname for Biden following the virtual Democrat convention compared to Trump’s controversial White House lawn shindig that has already produced a couple of new cases.

If recent history is any guide, a hoard of dip-buyers will come piling in tonight, excited by finally being presented with an opportunity to buy the Big Tech stocks they missed out on at a better price. But sensible commentators point out, as suggested above, -5% for the Nasdaq is nothing in the context over almost every day 1% gains for the past month.

They would not be buyers unless the high-flyers pulled a lot further back in valuation. There is no disagreement FAANMG and friends remain the stocks for the future, near and distant, but it comes down to price.

On the other hand, this could be 2000 all over again.

Commodities

Speaking of bubbles, iron ore is now at a six-year high. One reason why economists see even the July trade data noted above as ageing news.

Not so for base metals, which seemed to join in Wall Street sentiment.

A lower gold price defies lower US bond yields and a jump in the VIX volatility index, but often in a sell-off reflects selling to cover equity margin calls.

The Aussie is down -0.9% at US$0.7272.

Today

The SPI Overnight closed down -119 points or -2.0%.

Tonight’s US jobs numbers have now become a bit more interesting.

The Australian share market over the past thirty days…