Global markets were volatile again overnight, with US markets (S&P 500 index -1.2%) ending the session down after a another sharp plunge early in the session and partial recovery. The NASDAQ tech index fell -2.3%, bouncing off session lows in similar fashion.
All sectors were down except for Financials and Energy, both set to benefit from a recovering economy, with the latter benefiting from a bounce back in oil prices. Investors are clearly rotating out of technology/growth stocks and into value sectors of the market.
American Express rose +8.9% after beating earnings expectations as well as IBM and Johnson and Johnson. General Electric fell -6% despite being earnings but missing on revenue estimates with many other stocks also being punished on solid results as investors concerns around tomorrow mornings Fed announcement outweigh strong earnings.
Microsoft shares fell -2.7% heading into its result which was released after hours. Despite delivering an earnings and revenue beat the stock was only up +1% after hours, and even high-quality tech stocks are underperforming which is becoming cause for concern.
European Markets (Stoxx 600 index +0.8%) staged a bit of rebound led by bank stocks with most sectors in the green, barring tech stocks which led losses investors brace for higher interest rates, while a number of strong results helped prop up the market up.
Australia’s CPI (Inflation) data for the December 2021 quarter rose +3.5% year on year (or +1.3% quarter on quarter) above 3.2% expectations and the +3% annual increase in the September quarter. The implication is that the RBA could make its first interest rate hike as early as May this year, with the market initially pricing in one later in the year.
We are wary of the upcoming risks and that the heavy correction particularly across overvalued growth stocks is spreading across the market and significantly impacting quality stocks which will be an issue near-term. While we are starting to see some value we would hold fire with tomorrow mornings Fed announcement and market reaction a key indicator as to how things will play out over the near-term.
Wastewater treatment company De.mem shares were flat yesterday avoiding the market wide sell off after announcing its 2021 fourth quarter update.
Despite a challenging year due to Australia being in heavy lockdowns which restricted movement of staff cross state and businesses delaying heavy capital expenditure, De.mem delivered $19.8m of revenue for the year, which was up +24% from last year. The growth was driven by strong performance particularly across is bolt on businesses which is benefitting from, recurring revenue totalling $13.8m over the year, up +43% from last year and representing a greater portion of De.mem’s total revenue of 70%, up from 54% in 2019.
We remain BUY rated De.mem, keep an eye out out for a full report in our upcoming weekly.
Australia & New Zealand Market Movers
The Australian market plummeted yesterday (ASX 200 index -2.5%), starting the session down and sold off further after there was a higher than expected CPI (inflation) print, implying Australian interest rates could rise much earlier than the RBA initially guided for.
Most sectors trading lower with energy leading losses as oil prices retreated over the session. The Tech sector continues to be sold down, as local interest rate hike rate adding extra pressure.
Myer shares rose +6.8% after providing a trading update that sales rose +12.3% for the 5-months to 1 January 2022, however the recent omicron outbreak has affected sales over January.
The New Zealand market (NZX 50 index -0.5%) fell on Tuesday, marking its 5th consecutive down day, as investors remain nervous.
A2 Milk bucked the market wide selling rising +6.2%, buoyed by rumours of a potential takeover offer from Canadian based company Saputo, as well as Fonterra raising their milk pay out as milk prices rise due to supply constraints from US farmers.
Contact Energy rose +3.3% after delivering their December operating numbers showing strong electricity and gas sales from a year earlier.
A handful of stocks heavily sold also rebounded with Auckland International Airport up +1.9%, Oceania rising +2.6%, and Rakon rising +11.1%.
3 Things Markets will be Watching this Week
- The US Fed Interest rate decision this week will be closely watched.
- US earnings season gets into full steam, with Philips, J&J, GE, Microsoft, Tesla, Intel, McDonalds, Apple, Visa, Chevron, Caterpillar and Colgate-Palmolive reporting this week.
- Locally, Australia and New Zealand’s CPI (inflation) data is released.