Overnight: Ten Percent Will Do It

By Greg Peel

Another Day for the Lemmings

Tesla missed out on S&P500 inclusion, so it stands to reason that every sector in the ASX200 should be clobbered. The ramifications could reverberate for decades.

I hope all those traders who clammered to hurl themselves over the cliff didn’t have their plugs come out on the way down, because the futures are up 1.3% this morning so they’ll need to rethink today.

Not that there’s actually any “thought” involved, of course.

Over the past three sessions ahead of last night, -US$ trillion dollars were lost by six US stocks. Six stocks which do not have replicants in Australia. While these weren’t the only stocks to be sold in the pullback, they were the biggest contributors to big percentage moves down for all three major indices, not just the Nasdaq.

I could just pick out one local sector – supermarkets (staples) – to make a point. It fell -1.6% yesterday because FAAMG and Tesla pulled back from their all-time highs, achieved after parabolic moves upward in August. Didn’t see Woolies going parabolic last month.

For some sectors, we can make a case for weakness, but even then the moves yesterday were those of panic and not fundamental assessment. I suggest the bulk of the volume yesterday was driven by traders of the digital variety as the biological types stood aside with bemusement. Although Australia does have, as is the case in the US, a new trading cohort of young, inexperienced lockdown punters.

Oil prices fell -5% overnight and the energy sector fell -4.8%. Seems fair? No, it’s ridiculous. Beach Energy ((BPT)) fell -9.2%, Oil Search ((OSH)) fell -7.8%, as if it were the death of long term LNG contracts.

Healthcare fell -2.0%. No doubt it was going to be included in the “sell everything” trade anyway, but news of Oxford Uni/AstraZeneca stalling its vaccine trial is legitimate, if not overblown.

The Ausdaq fell -2.4%. Why only -2.4%? The banks fell -2.7%, because of weakness in Apple presumably.

Materials fell only -1.4% to be the “best” performer on the day. Metals prices did indeed drop overnight, but gold provided the offset.

Maybe we could point to Trump’s suggestion overnight that he will “decouple” the US from China as being a negative, but he could turn on a dime if the polls don’t back him up.

Maybe we could point to our government now joining in with China’s tit-for-tat childishness, kicking out Chinese scholars and media representatives, as a precursor to a more serious breakdown in trade relations than is already the case.

Or maybe we can wait and see what the computers do today, with Wall Street rebounding and our futures up 75 points.

Not Much Downside

The three-day sell-off for the S&P500, defined by a -10% correction for the Nasdaq, wiped out about a month’s worth of gains. In days of yore, if a stock market rose 10% in a year investors would be thrilled.

Wall Street had been expecting a correction from August’s euphoria and it finally happened. Mind you, billionaire US hedge fund managers had called “too much euphoria” back in May. Corrections always happen, but never on cue. For no particular reason other than it’s a round number, -10% is considered a “correction” rather than just a pullback, and the label itself suggests that’s as far as it will go for now.

So with the Nasdaq correction bell having been rung, the buyers piled back in last night. Tesla bounced 11%. In the recent parabolic run, traditional investors have been sitting on piles of cash watching everything get out of hand. Last night it was anecdotally noted that hedge funds were in as buyers.

The bounce-back wasn’t completely convincing – the Dow was up over 700 points within the last hour. Late selling could represent those having been margin-called having to get out regardless, and the rally providing an opportunity, or it could represent those who believe -10% is not yet enough to take the froth out of the high-flyers. We’ll have to see.

It may simply be news that TikTok is now trying to negotiate a way to stay in the US rather than having to be bought out by a US company. This news quickly took the wind out of the sails of suitors Microsoft and Wal-Mart in the last half hour, which certainly had a size-based impact on the indices.

What is almost amusing is that September and October are historically the months of volatility, and whaddya know, volatility has arrived right on cue. Wall Street looks set up for more of the same, especially as we approach the election.

In Australia, we could just sit back and watch this all happen from afar, dismiss it as a US-centric sideshow, and stick to worrying about Victorian lockdowns and Chinese retaliation that actually do impact on our domestic market. But no, Monday and Wednesday sessions confirm that if the US goes down, we’re going with it.

Via computer.

Commodities

On nothing new, oil prices regained about half of Tuesday night’s losses last night.

Copper bounced back with a vengeance, but not so iron ore.

The US dollar index headed south once more after a brief session of short-covering, albeit only by -0.2%. US bond yields ticked back up, but gold regained its position as a volatility safe haven.

Think the Australian stock market’s crazy? The Aussie has bounced straight back up by the 1.0% it lost the day before, to US$0.7281.

Today

The SPI Overnight closed up 75 points or 1.3%.

The ECB holds a policy meeting tonight.

Sigma Healthcare ((SIG)) reports earnings today.

CSL ((CSL)) is among those stocks going ex today.

The Australian share market over the past thirty days…