The Overnight Report: AI Is Real

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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

Tables Turned

On Tuesday, the local technology sector jumped 5.2% on earnings results from the likes of Altium ((ALU)) and Megaport ((MP1)) (and a Nasdaq rebound). Yesterday technology fell -5.3% on a -19.6% plunge for WiseTech Global ((WTC)) on result (Nasdaq flat).

On Tuesday, consumer staples fell -2.5% thanks to a -7.1% plunge for Coles Group ((COL)) on result. Yesterday, staples rose 1.8% as Woolworths ((WOW)) rose 3.5% on result. Mind you, Woolies had fallen -3% on Tuesday in fear of the Coles result.

It is a truth universally acknowledged that over the decades, one of the Big Two supermarkets is superior to the other for a couple of years or so. Right now it’s Woolies. Not so long ago (remember Little Shop?) it was Coles.

On Tuesday, losers on results were more numerous than winners. But on the impact of market weight, the ASX200 closed flat. Yesterday, the winners won. And the index closed up 26 points, although it was up over 50 mid-session.

Consumer discretionary (+0.9%) felt the benefit of a result from Domino’s Pizza ((DMP)) which sent that stock up 11.8%. Corporate Travel Management ((CTD)) nevertheless fell -6.9%.

In industrials (+0.5%), McMillan Shakespeare ((MMS)) starred with a 13.3% pop.

A rethink on Data#3’s ((DTL)) result following broker updates had that stock up 12.5% after falling -18.8% on Tuesday. Nanosonics ((NAN)) fell -5% on result on Tuesday and another -8.9% yesterday.

Iluka Resources ((ILU)) copped an -11.3% hiding, but materials took the silver (+1.3%) thanks to strength in iron ore.

Among the losing sectors, energy fell -1.0% on lower oil prices and a tepid response to Santos’ ((STO)) result (-1.0%). Communication services fell -0.9% after having risen 1.9% on Tuesday, as Telstra ((TLS)) backed off.

There were plenty more sizeable moves on result yesterday but you can find them here in FNArena’s ASX Winners & Losers (https://www.fnarena.com/index.php/2023/08/23/asx-winners-and-losers-of-today-23-08-23/).

The results season began with beats outpacing misses by a margin. But now the misses are closing in.

In economic news, an estimate of Australia’s composite PMI for August (manufacturing plus services) showed a drop to 47.1 from 48.3 in July, suggesting accelerating contraction. The Aussie ten-year yield fell -8 points to 4.19%.

Today is Super Thursday – the biggest day in the result season. Stocks to look out for include Qantas Airways ((QAN)), Ramsay Health Care ((RHC)), South32 ((S32)) and Whitehaven Coal ((WHC)), but there are many, many more.

The good news is Wall Street was up again last night on more bad-news-is-good, and our futures are up 36 points this morning. Gold has rebounded, but the oils have fallen again overnight.

The other good news is…

Nvidia

They couldn’t do it again, could they? Well, they did.

This morning chipmaker Nvidia has once again blown The Street away with significant beats on revenues, earnings and September quarter guidance. The stock is currently up 6%. If that seems a bit tame, Nvidia was already up 50% for the month and 220% year to date.

AI is no longer science fiction. The hype is founded.

While Wall Street spent all day hanging out for Nvidia’s aftermarket result, all three indices posted solid rallies.

The reason was the US ten-year yield fell -13 points to 4.20% and the two-year fell -5 points to back under 5%.

The reason for that was an estimate of the August US manufacturing PMI coming in at 47.0, down from 49.0 in July. That followed an estimate of eurozone composite PMI showing a fall to 47.0 from 48.6 to mark a 33-month low.

Bad news is good.

Another indication the US economy is not as strong as assumed was a revision of all the jobs reports from March 2022 to March 2023, which shaved a net -306,000 off original prints.

Economy weak equals yields down equals Fed pause likely equals good for stocks, particularly growth stocks. We’ll see what Jerome thinks tomorrow night.

In another sign the main driver of the US economy – the consumer – is also not as strong as assumed, Foot Locker posted earnings last night and fell -28%. That sent Nike down again.

Yet teen clothing company Abercrombie & Fitch reported and rose 23%. So some US retailers are handling the current environment well, and others aren’t.

Commodities

Lower US yields allowed gold to finally find some buyers.

A slow China is weighing on oil prices.

Lower US yields have the Aussie up 0.9% at US$0.6484.

Today

The SPI Overnight closed up 36 points or 0.5%.

The US will see durable goods orders tonight as the Jackson Hole symposium begins.

The biggest day in the result season has been noted.

Baby Bunting ((BBN)), Endeavour Group ((EDV)) and JB Hi-Fi ((JBH)) go ex today.

For all company reporting dates, please refer to the FNArena Calendar (https://www.fnarena.com/index.php/financial-news/calendar/) or the Corporate Results Monitor (https://www.fnarena.com/index.php/reporting_season/). The latter summarises result responses from brokers following each day’s result releases.

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.

All overnight and intraday prices, average prices, currency conversions and charts for stock indices, currencies, commodities, bonds, VIX and more available on the FNArena website.  Click here. (Subscribers can access prices on the website.)

(Readers should note that all commentary, observations, names and calculations are provided for informative and educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views expressed are the author's and not by association FNArena's – see disclaimer on the website)

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