The Overnight Report: Don’t Mention A Bottom

This story features ARISTOCRAT LEISURE LIMITED, and other companies. For more info SHARE ANALYSIS: ALL

By Greg Peel

Consumer Carnage

The ASX200 bottomed out down -145 points around 11am yesterday before staging at least somewhat of a comeback. While there were some big moves down in the likes of the banks (-1.8%), materials (-1.7%) and energy (-1.6%), it was consumer sectors that really copped the brunt.

The sudden shift in sentiment followed on from Wall Street overnight when Walmart had posted a weak result the night before, as did Target on Wednesday night, both posting falls not seen since the ’87 crash.

Thus our discretionary sector was down -3.1% yesterday after rising 1.1% on Wednesday on easing RBA aggression fears, while staples fell -3.7% after having already fallen -1.0% against the tide on Wednesday following the Walmart result.

In the US, Walmart – the staple – had fallen -11% while Target – discretionary – fell -25%. So why have staples been more hammered locally?

Likely because staples have, throughout a weak 2022, been a port in the storm – a reliable safe haven amidst high inflation and rising rates – and hence the sector had become overcrowded. Discretionary, on the other hand, has had its ups and down.

Although it could have been worse for discretionary, if Aristocrat Leisure ((ALL)) had not jumped 6.7% on its earnings result. Aristocrat is a Top 20 stock, but so is Wesfarmers ((WES)), which owns Target here. It fell -7.8%.

Among other discretionary heavyweights, JB Hi-Fi ((JBH)) fell -6.6% and Super Retail ((SUL)) -6.0%.

Among staples, Woolworths ((WOW)) fell -5.6%, Coles ((COL)) -3.4% and Metcash ((MTS)) -6.5%.

The question is one of just how much we can directly link the Australian consumer to the US consumer, and the Australian economy to the US economy, despite both suffering from supply chain issues. Yet US household balance sheets are in good shape, while we’re in debt up to our eyeballs, just as house prices begin to fall.

Hence the banks fell -1.8%.

Speaking of households, Josh was cock-a-hoop yesterday when the unemployment rate showed a drop to 3.9% in April from 5.4%…no sorry…4.0% in March. Except it didn’t, because March was revised down to 3.9%. And only 4,000 jobs were added when economists had forecast 30,000.

The split was nonetheless a gain of 92,100 full-time jobs versus a loss of 88,400 part-time, although this would simply reflect more hours being worked by the same part-time employees amidst businesses’ inability to find new employees, thus bumping them up to full-time status.

Participation dropped to 66.3% from 66.4%, so more people gave up on the workforce.

Within other sectors yesterday, technology fell -2.7% but that’s just an average day, while healthcare actually bucked the trend in rising 0.1% as investors went in search of a new defensive safe haven.

We’re all individuals

Networking software company Cisco Systems reported in Wednesday night’s aftermarket and last night fell -14%, leading the Dow to underperformance. Cisco declared the problem to simply be a supply-side one, as demand remains strong.

The Dow fell -450 points early last night session but in a the sort of classic headless-chook session that typically follows a big one-day fall, was up 80 points heading into the last hour and down -236 at the close.

Another US discretionary retailer by the name of Ross Stores reported in last night’s aftermarket and is down -22% as I write, having cited supply issues.

But not all retailers have been tarred with the same brush, despite Wednesday night’s panic exit from the sector. Department store chain Kohl’s, for example, reported last night and rose 4.4%. Other reporters in this, the week of retailer reporting, have also posted gains on their results, including during Wednesday night’s stampede.

The bottom line is some retailers are managing supply problems well and some aren’t. And this theme can be extrapolated across the wider stock market. Analysts agree that there are currently quality stocks on offer at beaten-down prices, or at least more realistic valuations, while others should not be touched.

Investors did begin piling back into some of the hardest-hit growth names on the Nasdaq last night while eschewing the likes of Apple (-2.5%), although the excitement did fizzle a bit to the close.

The reality is that at this level, the micro is becoming more important than the macro, and investors need to choose widely. Is this the bottom? The S&P500 did not last night crash below the -20% down level, but if we had a dollar for every time someone had called a bottom this year, we wouldn’t need to invest in the market.

Commodities

Metals/minerals went back to pricing in a Shanghai reopening last night following Wednesday night’s general market panic.

Oil saw a similar return to strength.

The US ten-year yield moved further away from the 3% level in dropping another -3 points to 2.85%, which, along with safe haven considerations and a big fall in the US dollar, had gold bouncing as well.

The -1.0% fall in the greenback has the Aussie up 1.3% at US$0.7050.

Today

The SPI Overnight closed down -9 points.

Japan reports its April, CPI today, following on from the UK at 9.0% this week and the eurozone on 7.4%.

AGMs will be held today by Life360 ((360)), AMP ((AMP)), InvoCare ((IVC)), Resolute Mining ((RSG)) and Syrah Resources ((SYR)).

Healius ((HLS)) holds a strategy day.

TGIF.

There’s something on tomorrow too, but I glazed over a month ago.

The Australian share market over the past thirty days…

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