The Overnight Report: Another Record

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By Greg Peel

The Dow closed up 59 points or 0.3% while the S&P gained 0.3% to 2190 and the Nasdaq added 0.6%.

Earnings Driven

In the August earnings season of 2015, the ASX200 fell 8.6% across the month. In the February season before that, the index rose 6.1%. In February this year, the index netted a 2.5% fall but that included a big commodity price-based drop and bounce mid-month. In each case, macro factors impacted on the market’s beta – its movement as a whole.

In this August season, the market as a whole is going nowhere much, as international markets also largely stall. What this means, unlike recent prior seasons, is that earnings results can be clearly reflected in stock price movements on alpha, or individual, stock risk without the overriding macro, or beta movement. Yesterday was a clear example.

The index did little, recovering from a slight dip in the morning to post a slight gain on the close. But under the surface sector moves were more notable, thanks to individual stock moves in those sectors. In short: the beats and misses.

Ansell ((ANN)) was the big winner on the day, rising 18% after posting a “less bad” result and announcing it might toss off its condom business. Short positions had been building in Ansell ahead of the season, and for reasons which continue to confound, JB Hi-FI ((JBH)) has always been popular with the shorters. Yet virtually every season the electronics retailer beats, and yesterday was another win which saw JB shares up 10%.

Packaging company Orora ((ORA)) has been a popular defensive plodder for investor portfolios this year but it still managed a 10% gain on the day. On the other side of the ledger, coal hauler Aurizon missed and suffered a 6% fall, and while Newcrest’s ((NCM)) numbers were not so bad, gold stocks have been bought up in a frenzy this year to stretched valuations. Its shares fell 4%.

Adding to the mix was National Bank ((NAB)), which provided a reasonable quarterly update that had its shares up 1%.

So we don’t need to look far to understand why the big sector movers yesterday were healthcare, up 0.5%, consumer discretionary, up 0.8% and the banks up 0.6%, with materials down 1.5%, and industrials little changed on the balance. We also saw some support returning for two sectors lately sold off to provide rotation funding – telcos and utilities.

On the assumption there are no left of field impacts on global markets for the next two weeks, and that’s always a big assumption to make, the season will continue in the same vein. The difference from here on in is the number of companies reporting each day will grow larger and larger, making it more of a task to unscramble the movements.

Hi, Hi, Hi

A second triple-high for all of the Dow, S&P and Nasdaq within two sessions of the first in sixteen years is a bit like winning the silver, but still more exciting than following Australia’s Olympic campaign. The way things are going these records will become routine, as there seems no reason for Wall Street to go down in any meaningful way at present.

And that’s a fact traders, investors and commentators reluctantly admit. You’d think they’d be thrilled, but they know it’s all just smoke and mirrors. Stock markets have turned into bond markets, offering more investment yield than long term government debt, because central banks across the globe have orchestrated such an investment environment.

It is not how it’s meant to be.

In the meantime, there’s no point in “fighting the tape”. The VIX volatility index suggests a high level of complacency, and that has traders worried. But with central bank safety nets in place, what’s there to worry about? Perhaps the time to worry will be when global economic growth starts to fade away completely, and central banks realise there is no more they can do.

Tech stocks continue to be a significant leader on Wall Street, and here we’re talking both old and new. Developments in areas like the cloud and Big Data, electric cars and the Internet of Things are 21^st century growth stories changing the landscape. Meanwhile, 20^th century pioneers like Microsoft, Apple and IBM are also in the game as they reinvent themselves.

Oil is a very old story on Wall Street but no less fresh today. The oil price rose another 2% last night, providing extra impetus to hit those new highs. Apparently the Russians are now in the game, reporting to Saudi newspaper they are prepared to talk production cuts. Still no one believes it, but still no one wants to be caught the day there really is a wolf.

Last night’s US data highlight was the housing market sentiment index, which rose to a comfortable 60 (50 neutral) to beat expectations. Housing is as significant and underlying economic driver in the US as it is in Australia at present.

All up it was another summer-quiet session on Wall Street, and another grinding gain. In two weeks we enter September, historically the worst month for stock market performance, followed by October, historically the scariest.

Commodities

West Texas crude is up US$1.02 to US$45.71/bbl.

After some big falls on Friday night, base metals staged a comeback of sorts last night. Nickel rebounded 2.5% and zinc 1%, while aluminium rose 1% and lead 1.5%. Copper stood still.

Iron ore fell US20c to US$60.00/t.

Gold rose US$2.90 to US$1338.60/oz.

Currency was not in play last night, with the US dollar index largely flat at 95.61. Yet the Aussie is up 0.3% at US$0.7674.

Today

The SPI Overnight closed up 8 points.

The minutes of the August RBA meeting will be released today.

In the eurozone, the ZEW survey will provide an indication of investor sentiment a month after the Brexit result.

The Fed will be talked about again on Wall Street tonight as US numbers for CPI, industrial production and housing starts are released.

On the local stock front, the number of earnings reports will grow today. The highlight is BHP Billiton ((BHP)) but that report is not actually due until 6pm to tie in with London investors.

During the session downunder, Challenger ((CGF)), Domino’s Pizza ((DMP)), G8 Education ((GEM)) Mirvac ((MGR)), and Scentre Group ((SCG)) are among the crowd today.

Rudi will Skype-link up with Sky Business today to chat about broker calls, at around 11.15am.
 

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