The Monday Report – 26 February 2024

This story features BRAINCHIP HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: BRN

By Greg Peel

The Nvidia Effect

Australia does not exactly have a booming tech industry the likes of the US but on Friday, after Nvidia had largely endorsed AI hype overnight, we did our best. On tenuous connections, Brainchip ((BRN)) rose 14.0%, Appen ((APX)) 13.0% and Weebit Nano ((WBT)), 7.7%. All of those stocks are well shorted.

In another US connection, Block ((SQ2)) rallied 16.5% after reporting in the US aftermarket – a performance which was repeated in New York on Friday night.

There was also a homegrown winner in the form of Aussie Broadband ((ABB)), which jumped 18.6% on its earnings result. Seems like all those annoying ads have paid off.

The tech sector was the best performer on Friday in rising 1.5%, but does not have a lot of ASX200 impact. Not all the stocks mentioned above are in the ASX200.

Nvidia had effectively lifted all of Wall Street and that positive sentiment has carried over to our market, but we still needed net positive earnings results to back it up. One standout on Friday was Lovisa Holdings ((LOV)), up 6.8%.

Consumer discretionary had a good day all round, with Jumbo Interactive ((JIN)) jumping 9.0% on its result, events company EVT Ltd ((EVT)) following on with 4.7% from its earlier result, and Tabcorp ((TAH)) bouncing back 6.9% having initially been trounced on its result.

Discretionary rose 1.5%.

Those two sectors were the two main players on the day, with the heavy lifting provided by a 0.7% gain for the banks.

Materials had a flat session, balanced out gains in the iron ore miners and falls in gold stocks. Newmont Corp ((NEM)) fared worst on its result (-8.1%), while Regis Resources ((RRL)) followed on from its Thursday result (-4.8%).

Also following on from its Thursday result plus cap raising was Lifestyle Communities ((LIC)), which lost -13.0%. The Aussie ten-year yield rose 4 points to 4.19%, and real estate fell -0.3%.

The index closed within 60 points of its all time high on Friday and the result season rolls on this week through to Thursday, with still plenty of reports to come.

Wall Street was quiet on Friday night and our futures were up 4 points on Saturday morning.

Take a Breath

Here’s a fun fact about Nvidia. When Wall Street bottomed in October 2022, after Nvidia had fallen -70% from its 2021 high, the company was valued at less than US$300bn and had a PE ratio of 32x.

Last night Nvidia briefly touched US$2trn in value, and has a PE of 33x. In other words, Nvidia’a extraordinary rally has simply been earnings-driven. That’s not hype, that’s real.

Otherwise, Wall Street opened on Friday night still feeling excited, but sentiment faded through the session, Friday afternoon-style. Most of the Mega Techs gave up some ground, except Nvidia, but even it could only manage 0.4%. The Nasdaq slipped -0.3%.

The S&P500 still managed to post the slightest of gains, and any gain is a new all-time high.

Wall Street did not much respond to a -7 point fall in the ten-year yield. Earnings season, which is now winding down, has been labelled a success, with two-thirds of S&P500 companies beating forecasts.

The long tail of the season is dominated by consumer stocks, which will provide more insight into whether the US consumer is really hanging in there, particularly given a weak January retail sales release. Of one particular concern to commentators, and the Fed, is quietly rising credit card defaults.

This Thursday night we’ll see January PCE inflation data, recalling the CPI and PPI numbers were stronger than forecast.

Yet there have been claims the January data were distorted by behind-the-times seasonal adjustment, and that February might just see an opposite result.

Wall Street will be hoping, but the reality is Fed rate cut expectations have fallen from 6.5 cuts expected in January to only 3.3 cuts now, yet Wall Street has pushed on to ever higher highs.

Commodities

Iron ore has lost its recent momentum.

Falls in oil prices to a two-week low have been attributed to another Fed speaker saying on Friday night the Fed is in “no rush” to cut rates. The Fed governor simply echoed prior Fed rhetoric that there is less risk in letting higher rates run for too long than there is in cutting to soon, and risking a bounce-back in inflation.

Higher-for-longer rates mean a drag on the economy, means lower oil demand. But it was hardly a revelation.

The Aussie continues to claw its way back, up 0.3% at US$0.6569.

The SPI Overnight closed up 4 points on Saturday morning.

The Week Ahead

We have now put the biggest week in the local result season, by a margin, behind us. There’s still plenty more to come as the season still rolls on this week, all the way to Thursday (an extra day). But mercifully, the numbers decline from here.

In the meantime, the ex-dividend season starts to hit its straps. This will mean ASX200 handicaps of varying degree from every opening bell.

On the economic front, this brings lead-in data ahead of the following week’s December quarter GDP result. We’ll see construction work done and private sector capex.

On Wednesday, it’s the January CPI, followed by retail sales on Thursday. Numbers for private sector credit and house prices are also due.

The RBNZ holds a policy meeting this week.

The big event in the US will come on the Thursday night, with the release of January PCE inflation data.

Ahead of that the US will see home prices, consumer confidence, durable goods orders and a revision of the December quarter GDP.

China will report February PMIs on Thursday, and the world will begin following suit on the Friday.

Earnings reporters today include Endeavour Group ((EDV)), Kogan ((KGN)), Lynas Rare Earths ((LYC)), Suncorp Group ((SUN)) and TPG Telecom ((TPG)).

Ex-divs include Ansell ((ANN)), Domino’s Pizza ((DMP)) and Santos ((STO)).

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

The Australian share market over the past thirty days…

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