By Millie Muroi
Welcome to your five-minute recap of the trading day, and how experts saw it.
The Australian sharemarket has started the new financial year on the front foot as miners and consumer companies climbed after a rally on Wall Street.
The S&P/ASX 200 was up 42.8 points, or 0.6 per cent, to 7246.1 at the close, despite information technology stocks underperforming during the session.
Miners (up 1.1 per cent) were among the strongest companies on the local bourse as lithium miners Pilbara Minerals (up 3.5 per cent) and Allkem (up 2.9 per cent) both advanced.
Gold miners were also stronger, with Newcrest (up 2.5 per cent), Evolution Mining (up 3.4 per cent) and Northern Star (up 3.6 per cent) among the biggest large-cap advancers after the spot gold price rose 0.6 per cent.
The consumer discretionary sector (up 1.4 per cent) was the strongest of the pack as Wesfarmers gained 1.4 per cent, Lottery Corporation lifted 2.3 per cent and Aristocrat Leisure added 1 per cent.
United Malt Group, the world’s fourth-biggest maltster, jumped 8.6 per cent to $4.78 after it agreed to a $1.5 billion – $5 a share – takeover offer from French agribusiness InVivo’s Malteries Soufflet unit.
Information technology (down 1.5 per cent) was the weakest sector as traders assigned a 60 per cent likelihood of a further rate rise when the Reserve Bank meets on Tuesday. WiseTech (down 2.9 per cent), Xero (down 0.9 per cent) and TechnologyOne (down 2.2 per cent) all slipped lower.
Meridian Energy (down 3.3 per cent) was the biggest large-cap decliner, bucking the trend among energy companies, along with IDP Education (down 2 per cent) which also fell despite strength in the broader consumer discretionary sector.
Novus Capital senior client adviser Gary Glover said while strong US markets helped buoy the Australian sharemarket on Monday, all eyes were on the Reserve Bank’s next rates decision.
“Markets recovered from a shake-out last week,” Glover said. “Retailers bounced back strongly after getting murdered in the past few weeks but if the RBA lifts rates by another 25 basis points, there’ll be a squeeze on markets.”
Despite the technology-heavy Nasdaq composite in the US climbing last week, Glover said technology firms in Australia dropped.
“Some of those technology stocks have been pretty buoyant in the last few months, so there might have been some profit-taking,” he said.
Wall Street blazed to another rally on Friday to close a winning week, month and first half of the year after reports suggested pressure on inflation may be easing.
The S&P 500 climbed 1.2 per cent to reach its highest level since April 2022. The Dow Jones Industrial Average rose 285 points, or 0.8 per cent, and the Nasdaq composite jumped 1.45 per cent.
The market has cruised through 2023 in part because the economy has been able to defy many predictions for it to fall into a recession – at least so far. The job market, in particular, has remained resilient despite higher interest rates slowing the economy in hopes of dragging down inflation. That has helped profits for companies not fall as much as feared.
“Just think back to the beginning of the year: there was more pessimism both on the economic and corporate fronts,” said Lisa Erickson, head of the public markets group at US Bank Wealth Management. “And we’ve just seen, on both fronts, outperformance.”
Not only that, Wall Street hopes inflation is cooling enough for the Federal Reserve to soon halt its rises to interest rates. That would mean less added pressure for the economy and financial markets.
A report on Friday showed a measure of inflation that the Fed prefers to use eased in May. It also said growth in spending by consumers slowed by more than expected. If fewer dollars are chasing after purchases, that could remove more pressure on inflation.
“There’s lots of noise around the edges, but tepid consumption growth and a downward trend for inflation means the end is near for rate hikes,” said Brian Jacobsen, chief economist at Annex Wealth Management.
The Fed has already raised rates a mammoth 5 percentage points from close to zero early last year. Traders on Wall Street pared back bets that the Fed may raise interest rates twice again this year, with most betting the federal funds rate will be only 0.25 percentage points higher at the end of 2023, if it all, according to data from CME Group.
Yields in the bond market turned lower after the release of the economic data. The 10-year Treasury yield fell to 3.82 per cent from nearly 3.87 per cent just before the report’s release. It helps set rates for mortgages and other important loans.
‘There’s lots of noise around the edges, but tepid consumption growth and a downward trend for inflation means the end is near for rate hikes.’Brian Jacobsen, chief economist at Annex Wealth Management.
The two-year Treasury yield, which moves more on expectations for the Fed, slipped to 4.88 per cent from 4.90 per cent just before the report’s release.
A separate report from the University of Michigan said sentiment among consumers was improving, but their expectations for inflation weren’t rising. That could also make for an easier Fed. The central bank has said it wants to avoid a vicious cycle where expectations for high inflation drive behaviour that only worsens inflation.
Easier interest rates help prices for all kinds of investments. But technology and other high-growth stocks tend to be seen as some of the biggest winners, and they helped to lead the market.
Nvidia rose 3.7 per cent, for example. It’s been among a small cadre of stocks that have exploded higher this year amid a frenzy about artificial intelligence software. It’s up 189.5 per cent for the year so far.
Apple climbed 2.3 per cent to become the first US stock to end a day with a total market value of more than $US3 trillion ($4.5 trillion).
On the losing end of Wall Street was Nike. It fell 2.6 per cent after reporting weaker profit for the latest quarter than expected, though its revenue topped forecasts.
One criticism of the stock market’s rally this year has been how much of it was because of just a handful of big technology stocks. Gains recently have broadened out a little, and the market’s smallest stocks rose 0.4 per cent, as measured by the Russell 2000 index.
Stocks are generally more expensive than they’ve been historically, relative to their profits, but they still look “in the zone of OK”, Erickson said. She is suggesting investors stick to a “neutral” approach, not bulking up any more than usual on stocks versus bonds but also not abandoning them.
All told, the S&P 500 rose 53.94 points to 4450.38. The Dow gained 285.18 to 34,407.60, and the Nasdaq climbed 196.59 to 13,787.92.
The S&P 500 closed out its sixth winning week in its last seven and its best month since October. The index’s gain of 15.9 per cent through the first six months of the year is better than it has done in 16 of the last 23 full years.
In other overseas markets, one of the world’s best stock markets this year took a breather after Japan’s Nikkei 225 slipped 0.1 per cent. It still rose 27.2 per cent in the first six months of 2023.
The US stock market will be open for a half-day on Monday and closed Tuesday for the Independence Day holiday.
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Source: Thanks smh.com