The Overnight Report: Floating All Boats

This story features WOOLWORTHS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: WOW

By Greg Peel

Balancing Act

The feature of the local earnings season to date, as we now move through the really big days, is the number of times the ASX200 has traded in a tight range and closed flat. This has required a lack of macro incentives, a dismissal more or less of Wall Street and its Mega Techs, and daily result responses, up and down, that have balanced each other out.

There’s been the odd exception, of course, such as last Wednesday, but that was as much about the Woolworths Group ((WOW)) CEO bailing as it was anything else.

The futures were nevertheless down -19 points yesterday morning, reflecting a little bit of Wall Street anxiety over Nvidia, and the ASX200 did hit a low of -24 late morning, but once again, it recovered.

Despite the flat closes, we’ve been seeing some big sector moves each day as influential stocks within make their mark with solid moves up or down. Yesterday was different nevertheless, with even sectors moves largely benign, with the only exception being utilities (+2.0).

That sector is basically run by two energy providers, and yesterday Origin Energy ((ORG)) rose 2.9% on no news and its rival didn’t. Origin reported last week.

Otherwise, the biggest sector move was that of staples, again (-0.7%), as Woolworths fell another -1.8%. Discretionary fell -0.6%, with Tabcorp ((TAH)) falling -10.3% on result.

Communication services fell -0.6%, with Nine Entertainment ((NEC)) falling -8.7% on result.

The moves in the consumer sectors were otherwise net of a 13.0% jump for (staple) Bega Cheese ((BGA)) on its result and 10.4% for (discretionary) Lovisa Holdings ((LOV)), with a 7.7% comeback for Domino’s Pizza ((DMP)) after it was carted on Wednesday.

Index winner on the day was Insignia Financial ((IFL)), in another “you don’t see that every day” move. The stock jumped 13.7%, but has been quietly on the slide for four years.

Another comeback kid was Fletcher Building ((FBU)), up 8.4%, but that stock’s recent slide has been anything but quiet.

The biggest loser yesterday was Sayona Mining ((SYA)), after Piedmont Lithium ((PLL)) sold its stake. Its shares fell -28.1%.

Today might break the mould a little. We’ve been ignoring Wall Street but Nvidia has surged, the S&P500 has surged, and our futures are up 32 points.

The S&P500 has hit yet another new high. The ASX200 is -92 points short.

No, it’s not 1999

There has been a lot of trumped-up anxiety about the AI euphoria on Wall Street being dangerously similar to the dotcom bubble of 1999, and all bubbles must eventually burst. But one standout feature of 1999 was that PE multiples were off the scale.

Before Nvidia reported yesterday morning (our time), Nvidia’s PE multiple had come well off its earlier peak, when AI hype first exploded on to the scene, and indeed it had a lower multiple than its immediate peers.

Why? Because quarter after quarter the price goes up (higher PE), and quarter after quarter Nvidia delivers on the earnings needed to justify the price (lower PE). The December quarter has proven no different.

Not only has Nvidia justified its own share price, it has justified the whole AI story. Last night anything even remotely connected to AI also saw share price rallies.

Nvidia rose 16.4%, and its nearest peer Advanced Micro Devices rose 10.7%, having reported earlier in the season. Right across the chip spectrum, stocks saw solid gains. And not just the chipmakers. But the companies that make the machines for manufacturing chips, and the companies that provide the silicon blanks chips are made on.

And the end-users of AI – any stock connected via its AI adoption. Microsoft (the biggest company on Wall Street) is an obvious example (+2.4%).

Of course, Nvidia cannot keep growing earnings at the current rate it is now. If for no another reason its market cap just gets bigger and bigger, so it takes bigger and bigger levels of nominal earnings to provide the same percentage growth rate. But that doesn’t mean it will all come to a screaming halt, nor burst like a bubble. There will be pullbacks along the way, for sure (Nvidia fell -70% in 2022), but for now, the AI story is not over.

Pundits insist it’s only just begun.

Suffice to say last night the S&P500, and the Dow, hit another new record high, while the Nasdaq, following its big round-trip through 2022-23, is almost there as well.

One regional Fed president last night pushed back on the first rate cut coming even as late as July, trimming to odds of a July cut and boosting September.

Right now, Wall Street couldn’t care less.

Commodities

The surge in the nickel price over the last two sessions is attributed to new sanctions placed on Russia by the US, with more being considered by the EU. Russia is a leading global nickel producer.

After sliding for a few days, iron ore has bounced back.

The Aussie is still asleep at US$0.6552.

Today

The SPI Overnight closed up 32 points or 0.4%.

While Fridays are usually quieter during a result season, today's not particularly so. There’s still a long list of names set to report.

BlueScope Steel ((BSL)), GUD Holdings ((GUD)) and Leandlease ((LLC)) are among today’s ex-div stocks.

FNArena's Corporate Results Monitor: https://fnarena.com/index.php/reporting_season/ (with calendar).

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.

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