The Overnight Report: Rotation

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This story features MEGAPORT LIMITED, and other companies.
For more info SHARE ANALYSIS: MP1
The company is included in ASX200, ASX300, ALL-ORDS and ALL-TECH

By Greg Peel

Gravitation Pull

For the third session in a row, the ASX200 opened strongly in the morning and then faded away through the afternoon, returning towards the 7500 level. On Tuesday weak retail sales data turned the market. On Wednesday it was risk-off ahead of the Fed meeting.

Yesterday saw two attempts to push through the highs in the morning, before the sellers again won in the afternoon for a close of 7511. Yesterday didn’t really have an excuse, thus it appears consolidation around 7500 is required, and maybe a pullback after three failed attempts, before the market decides whether buying into an economic slowdown is warranted.

The reality is the local market is back at the post-covid high of April last year, and is taking its cues from Wall Street, but the S&P500 is still -8% below its equivalent high. Wall Street is pouring back into Big Tech and Spec Tech and anything that was sorely beaten down in 2022 – the sort of stocks we have few of (in index terms).

We rely on rocks and gas, and for the most part those prices are easing.

The big three Big Tech sectors on Wall Street are technology, communication services and consumer discretionary, which specifically drive the Nasdaq and to a great extent the S&P500. Yesterday, following Wall Street’s lead, our technology sector jumped 3.2%, with comm services up 0.7% and discretionary 1.3%.

On the other hand, energy fell -0.9%, materials -0.3% and utilities -0.3%.

Our market is more dominated by the big banks than Wall Street (as a percentage of market cap). With talk ongoing of our banks about to post peak earnings before a pullback, financials were down -0.4% yesterday.

A -13 point fall in the US ten-year yield post-Fed to 3.40% was matched here by only a -4 point drop back to an all-too familiar 3.50%. But real estate kicked on again (+0.9%).

Healthcare also weighed in with a 0.9% gain.

And all of the above is after the index turned a 47 point gain in the morning into only an 8 point gain by the close.

Leading out the tech sector yesterday, and the index, was Megaport ((MP1)), which bounced back 11.1% after this week’s plunge. WiseTech Global ((WTC)) followed with a 6.8% gain. One of the biggest stocks in the tech sector is Computershare ((CPU)), which lost -3.6% yesterday to top the losers’ board, due to lower rates (and talk of potential disappointment with the financial result release).

Rather puts the 3.2% gain by the close for tech into perspective.

Meanwhile, Rio Tinto’s ((RIO)) -2.3% loss put it among the top five losers.

A lot of yesterday’s early exuberance was due to an aftermarket earnings report from Meta – a company simply not replicated in this country – which has closed up 23% in last night’s trade.

Our futures are up 25 points this morning, again.

But there are some more US biggies that have just reported earnings in last night’s aftermarket.

Meta Madness

Wall Street’s aftermarket earnings reports were rated Triple-A. Apple (Dow) rose 4% last night and on report is down -5% in the aftermarket. Amazon rose 7% and is down -5%, and Alphabet (Google) rose 7% and is down -5%.

Ford (Dow) has reported and is down -8%. Ditto Starbucks, down -3%.

These results followed a post-Fed session that was all about rotation, which began in the brief period post press conference on Wednesday night. Investors bailed out of defensives and value and back into cyclicals and growth – particularly those most beaten-down in 2022 (of which Meta is one).

United Health reported in the morning and fell -5%, impacting heavily on the Dow.

Post-Fed, US bond yields and the US dollar index plunged, fuelling exuberance. US yields were flat last night but they plunged in Europe and the UK. The Bank of England hiked by 50 points last night but signalled inflation has peaked. The ECB hiked by 50 points and said it will do so again at the next meeting.

That’s two 50s to the Fed’s 25 but in each case yields plunged, so the US dollar index has bounced back 0.6%.

After another full 3.3% gain for the Nasdaq – a lot of it driven by last year’s “trash” – commentators are now talking “frothy”.

Those Triple-A earnings responses may just bring Wall Street back to earth tonight.

And there’s the January jobs numbers.

Commodities

The bounce in the US dollar has had rather an impact on gold.

More global rate hikes, more pain, less demand for oil.

The Aussie has crashed back -0.9% to US$0.7081 on the greenback’s bounce.

Today

The SPI Overnight closed up 25 points or 0.3%, but that was before the Triple-A earnings results were released.

January service sector PMIs are out across the globe today.

US jobs tonight.

For more detail go to FNArena's Australian Broker Call Report, which is updated each morning, Mon-Fri.

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