The Overnight Report: Slow And Steady

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By Greg Peel

The Dow closed up 16 points or 0.1% while the S&P gained 0.2% to 2166 and the Nasdaq rose 0.5%.

Grafting

The ASX200 posted its eighth consecutive up-day yesterday in rising 28 points. I haven’t seen any referrals to history, but I assume it’s been a while since we’ve seen such a run. The eight days have taken us from a Brexit low of 5197 to yesterday’s close of 5458 – a gain of 5%.

That’s a lot in a week but if we take out the hundred point gain of Monday last week we’re otherwise looking at a steady graft. That Monday was the day the world decided Brexit was no big deal but otherwise, our market, Wall Street and other markets clearly have a feel of “Where else could I put my money?”

Materials slipped a little yesterday to be the only losing sector while gains were mostly even across all other sectors with the exception of energy, up 1.2% as Oil Search ((OSH)) abandoned its bid for InterOil, and consumer discretionary, which gained 1.4%. JB Hi-Fi ((JBH)) was the mover in a sector that has been a little left behind in the rally so far, being one of the most cyclical.

Which brings us back to the question of just how long a rally based on defensives can last. The bounce in commodity prices helped the index back over 5000 pre-Brexit vote and while issues of capital and low interest rates still trouble banks, their yields cannot be ignored. Otherwise, utilities and telcos have been drivers, consumer staples has defied the supermarket wars, although we must remember there are other stocks in that sector, and healthcare has wobbled its way back after various regulatory and Brexit (currency) scares.

To seriously push to new highs – and here we remember that while Wall Street long ago surpassed its pre-GFC high, the equivalent ASX200 high is still 25% away – we will need growth stocks to take the baton. Yield compression in the banks, REITs and infra funds can only last so long before bond proxies become way too expensive.

Bring on the result season.

Grafting

It occurred to me this morning that the original FNArena Overnight Report was only ever written on days in which the Dow moved 50 points or more. That was ten years ago. The reason being that under 50 points there wasn’t really much to talk about – over 50 points obviously something had happened. Nowadays 50 points is a slow day.

The point is that with the odd exception of 1987, the tech wreck wreck and other spurts of volatility, grafting is what stock markets typically did up until the GFC. The financial world was a steadier, safer place. But for the fact there may not be a lot to talk about in an Overnight Report, it would be nice to return to that world.

Wall Street grafted higher again last night without any great conviction. Each move up in both the Dow and S&P is currently a new all-time high. The Nasdaq is back over 5000 and at new highs for 2016 but still below its 2015 high.

The Nasdaq was in the frame last night, outperforming with a 0.5% gain thanks to Japan’s Softbank making a takeover bid for US-listed but UK-based ARM Holdings, makers of technology for Apple and others. Jaws dropped at the 43% premium offered by Softbank, the CEO of which explained his eagerness as a longer term investment in the Internet of Things.

Call that “new tech”. New tech was otherwise dealt a blow after the bell this morning when Netflix posted a shocker that sees its shares down 14% as I write. Old tech, in the form of IBM (Dow) and Yahoo, posted reasonable results which have them both up slightly.

Bank of America joined its peers in posting a beat during the session, which sent BofA shares up 3%. But to put that into context, BofA’s “beat” was still on a 19% drop in June quarter earnings year on year, blamed on low interest rates.

Wall Street continues to worry over the TINA rally and the high multiples being paid for defensive yield, as is the case here. As the US result season rolls on, a clearer picture will emerge, particularly from forward guidance rather than just last quarter’s earnings numbers.

Commodities

Iron ore tumbled back last night, falling US$1.60 to US$56.20/t.

A mixed session on the LME saw nickel starring with a 2.7% gain (See Nickel Price Hike Likely).

West Texas crude fell back US$1.03 to US$45.20/bbl as it became clear the Turkish government is back in control. WTI is bouncing around a lot, and so too local energy stocks, but for the moment it’s firmly wedged into a 45-50 range.

Gold is down US$8.60 to US$1328.60/oz despite the US dollar index being down 0.1% at 96.56.

The Aussie is steady at US$0.7580.

Today

Anyone want to back nine days? The SPI Overnight closed up one point.

We’ll see the minutes of the July RBA meeting today. Economist consensus is still baking a rate cut next month.

The first post-Brexit ZEW survey of eurozone investor sentiment is out tonight.

On the local stock front, Oil Search and Rio Tinto ((RIO)) will post June quarter production reports.
 

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