Global markets were mixed overnight, with US Markets (S&P 500 Index, -1.5%) tumbling lower as following the Fed Chairman Jerome Powell almost inking in a 50-basis point rate hike for the upcoming meeting in May, and saying that bigger rate hikes may be coming over the next few months.
The more aggressive tone comes as the Fed looks to front load rate hikes to combat inflation, lifting their peak rate range from 3.25% to 3.50% level – the news sending the 10-year treasury yield above 2.9%, its highest level since late 2018.
Markets are now not only concerned about asset valuations in light of rising interest rates but also the impact on the economy, and that a sudden slowdown could trigger a recession.
The above spurred a broad-based sell off with all sectors trading lower, with energy, technology and communication stocks leading losses, and the US tech NASDAQ index fell -2%. Airlines were the few stocks to buck the trend – United Airline rose +9% after forecasting a profit for 2022, and American Airline lifted +3.8% after projecting a pre tax profit for the second quarter. Of the 87 companies that have posted earnings in the current season, 80% have beaten estimates to-date.
European markets (Stoxx 600 index, +0.3%) helped by upbeat earnings.
Closer to home, New Zealand’s CPI (Inflation) rose at its fastest pace since 1990 up +6.9% but came in below economist forecasts of +7.1%. Imported inflation pressures remain strong, with annual tradeable inflation lifting to 8.5%.
Tesla (TLSA:NASDAQ)
Tesla was one of the few stocks in the green overnight, rising +3.2% after posting strong first quarter result beating market expectations due to strong car deliveries. Tesla reported quarterly production of 305,407 units and deliveries of 310,048 units, which was a big jump from the same corresponding period last year, but almost flat with the previous quarter – attributed to supply chain challenging and factory shutdowns.
Tesla continues to grow extremely fast, with revenue rising +87% from last year to $16.9 billion as it builds up scale, with its profitable operating margins at a record high of 19.2% net income came in a $3.3 billion or $3.22 per share – beating market expectations by $0.95.
While a fast growing company, we still view Tesla as an expensive stock valued at $1.08 trillion and trading at ~75x future earnings per share. While near to medium term growth should be stronger we are wary of the long-term impact on the business from increased competition by rival EV companies and traditional car companies adding EV options. For that reason, we are HOLD rated and prefer to watch from the side-lines.
Australia & New Zealand Market Movers
The Australian market was up yesterday (ASX200 index, +0.3%) edging closer to all time highs.
Most sectors traded higher, but gains across the market were weighed down by losses for the technology and materials sectors.
The ASX’s largest company BHP fell -3.1% after releasing a weak March quarter production numbers for coal and copper, with its mining peers also trading weakly.
Megaport suffered the biggest loss down -21%, after a weak quarterly update where revenue only rose +5%, with many other tech names suffering modest losses over the session.
Challenger financial (+9.8%) and Brambles (+8%) were the best performing stocks both providing solid trading updates.
The New Zealand market edged lower on Thursday (NZX 50 index -0.1%), mostly unchanged as New Zealand’s hot inflation data came in just below economist expectations.
Contact Energy rose +1.2% after announcing it would collaborate in a 50:50 with Lightsource to develop a solar farm creating up to 380,000 megawatt hours of electricity annually by 2026 – potentially enough to power 50,000 homes across the country.
3 Things Markets will be Watching this Week
- Geopolitical risks remain extremely elevated with the Russia/Ukraine conflict.
- CPI (inflation) data in New Zealand and Eurozone
- US earnings from Netflix, Johnson and Johnson, Tesla Verizon, Proctor and Gamble this week. Quarterly updates from Australian miners and oil producers are due.