It is amazing what a couple of days can do to the market, many investors were trying to pick the top, but it didn’t eventuate, and we are right back to the all-time high resistance again. It is good to see some momentum back in the market though, hopefully, this is the one that pushes the XJO back into all-time highs.
It was a mixed night with Energy, Financials, Industrials and Real Estate in the red. Tech, Health Care, and Discretionary stocks did the heavy lifting. Reopening stocks struggled a little as investors continue to worry about the spread of the delta variant with cases in the US remaining around 50k a day.
Reporting in the US continues to flow through strong with almost all stocks beating earning expectations overnight. Intel beat by almost 20%. Reporting will continue next week with many of the big tech names like Google, Facebook, Apple, and Microsoft.
Locally with VIC, NSW and now SA in lockdowns we have perhaps more than half of the Australian population locked down. This is also weighing on sentiment. Markets though are unlikely to sell off too much as we have enough Aid measures to stop the local economy from spiraling out of control. At this stage, both the government and the RBA believe we will avoid another recession off the back of lockdowns.
Iron Ore took a hit after China realised news that they will be capping their Iron output to the same level as 2020. This means that there is no too little growth in the demand side for Iron Ore. Is this just more propaganda to get the Iron Ore price down? With many miners planning on more supply later this year and next, it means we have likely found the top for Iron Ore. In saying that though there are still issues on the demand side, so Iron Ore in the short term may still hold in the high 100’s.
The XJO is expected to edge slightly lower on open this morning. This is not surprising considering the lacklustre night we saw in the U.S overnight. Despite the SP500 edging higher and reversing intraday losses, it’s a sign that perhaps they are slowing down for a bit of respite following such a strong two-day bull run. Our market will likely sit on its hands if not give up some gains today, though will be buoyed by positive U.S futures this morning. In addition, our market yesterday tried very hard to stick its head outside the consolidation range, thereby showing strong commitment and good will to the bulls. Alas it was not met halfway by the U.S overnight and so we will likely retreat into the safety of the 7,250 – 7,350 trading range once more. At the moment, one good turn must be met with another, or it is back to the comfort of range trading and 7300.
With the U.S stalling at key resistance, it is hard to know if the strength will continue. On one side, we have seen a strong bounce from the long-term uptrend lines in both the SP500 and XJO. A sign that would often lead to higher highs. In addition, the worry around the delta strain seems to have dissipated as quickly as it came, and the conversation has once again focused on stimulus. Finally, U.S reporting seems good, and our reporting season is right around the corner. On the other hand, we have seen strong volatility in both the SP500 and XJO. The residing technical pattern for the XJO remains the tight channel, and the SP500 has clearly stalled at key resistance. Finally, virus cases may continue to worry markets, especially locally with no end in sight for NSW’s lockdowns.
Ultimately, the short term may feel uncertain due to these factors, but in the medium to longer-term there is not shortage of bullish sentiment from analysts, pundits, and commentators. So perhaps we are in for further sidewards (albeit volatile) movement overall – but only in the short-term.
US shares closed higher again overnight, though gains were fairly small for the major indices. The S&P 500 traded slightly lower for parts of the session, but finished around the highs of the day to close slightly in the green. US economic data overnight was largely weaker than expected, with jobless claims, both new and existing, coming in worse than expected, there were also worse than expected home sales numbers, and a build-up in gas inventories.
Weaker economic data does mean that stimulus is likely to remain in place for longer however, so it wasn’t interpreted too badly by the market. Overnight US company earnings reports were again extremely positive, with an ocean of large-cap US stocks again exceeding consensus expectations with their earnings. Energy, Financials, and Real Estate stocks were the weakest performers overnight, while Technology, Healthcare, and Consumer Discretionary were the strongest.