Energy stocks rally in first day of share trading for 2024

Energy companies powered the Australian sharemarket on its first day of trading in 2024 shrugging off negativity in Wall Street last week, following a year which saw the local bourse register its best annual return since 2021.

The S&P/ASX 200 rose 12.6 points, or 0.2 per cent, to 7603.4 at about 10.30am AEDT as most sectors trading in positive territory and as other major sharemarkets remained closed overnight for New Year’s Day.

The Australian sharemarket was lacklustre on its first day of trading in 2024.
The Australian sharemarket was lacklustre on its first day of trading in 2024.Credit: AFR

Energy stocks (up 0.7 per cent) were among the strongest on the local bourse with coal miners Whitehaven (up 1.5 per cent) and Yancoal (up 1.4 per cent) doing some of the lifting. Heavyweights Woodside (up 0.6 per cent) and Santos (up 0.3 per cent) also pushed into positive territory along with Ampol (up 0.9 per cent).

Communication services companies (up 0.8 per cent) also climbed. REA Group gained 1.3 per cent and Car Group added 1.4 per cent. WiseTech (up 0.6 per cent) buoyed the information technology sector along with Xero (up 0.6 per cent), data operator NEXTDC (up 0.5 per cent) and TechnologyOne (up 0.2 per cent).

Miners (down 0.01 per cent) were among the weakest on the index as gold companies Newmont (down 0.7 per cent) and Northern Star (down 0.7 per cent) slipped following a 0.1 per cent drop in spot gold prices overnight. Iron ore majors BHP (down 0.04 per cent) and Rio Tinto (down 0.02 per cent) opened flat.

Insurers IAG (down 1.2 per cent), Suncorp (down 1.1 per cent) and Medibank Private (down 0.6 per cent) were among the biggest large-cap decliners, although the financials sector (up 0.2 per cent) more broadly was positive on the back of gains by the big four banks. CBA added 0.5 per cent, NAB climbed 0.1 per cent, Westpac increased 0.5 per cent and ANZ edged up 0.1 per cent.

Meanwhile, Asian equities are poised to start 2024’s first trading day trending down after US stocks last week retreated from near all-time highs in a blip for a market notching its longest weekly advance since 2004.

Contracts for Australian benchmarks fell, while Japan – hit by a powerful earthquake on New Year’s Day that killed at least four people and triggered a widespread tsunami warning – is closed for a national holiday.

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Signs of exhaustion emerged after an over $8 trillion surge in the S&P 500 this year, with the gauge still notching its ninth straight week of gains. Traders have looked past US Federal Reserve uncertainty, recession angst and geopolitical risks. And many who came into 2023 dreading all that have ended up scrambling to chase the rally.

“The market shows signs of fatigue and undoubtedly needs to consolidate,” said Quincy Krosby at LPL Financial. “As long as participation remains broad, the bullish sentiment should carry the indexes as they navigate geopolitical and domestic scenarios, and an overarching positive consensus that 2024 will be a similarly strong year.”

Investors will be monitoring Chinese exporter-oriented Caixin manufacturing data later on Tuesday after President Xi Jinping used his annual New Year’s address to pledge strengthening of economic momentum and job creation, while acknowledging some companies and citizens had endured a difficult 2023.

“We will consolidate and strengthen the momentum of economic recovery, and work to achieve steady and long-term economic development,” Xi said in the televised message on Sunday, beamed to his nation’s 1.4 billion people. China’s much-anticipated post-pandemic economic boom failed to materialise in 2023.

Meanwhile, energy markets may be impacted by Iran dispatching a warship to the Red Sea after the US Navy destroyed three Houthi boats, a move that risks ratcheting up tensions and complicating Washington’s goal of securing a waterway that’s vital to global trade.

Oil posted its biggest annual drop since 2020 as war and OPEC+ production cuts failed to propel prices higher in a year dominated by supply growth outside of the grouping. Emerging-market currencies closed out their best year since 2017 as the outlook for lower interest rates in the US revived investor appetite for risk.

A Houthi helicopter approaches a cargo ship in the Red Sea.
A Houthi helicopter approaches a cargo ship in the Red Sea.Credit: AP

Trading has been fuelled by the artificial-intelligence boom, stretched positioning and the “fear of missing out”, with the S&P 500 soaring 24 per cent in 2023, while the Nasdaq 100 had its best year since 1999. Chipmakers saw their biggest annual gain in more than a decade, led by major AI players Nvidia and Advanced Micro Devices.

Equity markets have gone up so quickly that they’re highly vulnerable to a pullback if the US economy slips into even a mild recession, according to RBC Global Asset Management. Rate cuts are likely to happen in 2024, but the global economy hasn’t yet absorbed the full impact of almost two years of tightening, RBC economist Eric Lascelles said.

“What’s baked into the cake is a sizable jump in earnings, which is really only achievable in a soft-landing scenario,” Lascelles said.

Following a nine-week winning streak, the S&P 500 has posted average and median 12-month forward returns of 8.1 per cent and 12.2 per cent, respectively, Turnquist said, citing data going back to 1950. Seven out of nine occurrences produced positive results, he noted.

After a year of massive swings and numerous head fakes, the US 10-year yield ended 2023 pretty close to where it began. It’s an almost farcical conclusion to 12 months of trading that saw it tumble to as low as 3.25 per cent in the wake of March’s banking crisis – only to surpass 5 per cent just a few months later.

Key inflation data endorsing a growing narrative that central bankers will aggressively cut rates in 2024 fuelled solid gains for both equities and bonds in the last two months. The rally was also driven by US Fed Chair Jerome Powell’s dovish pivot at the December policy meeting.

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