Welcome to your five-minute recap of the trading day, and how experts saw it.
Financial and real estate stocks heavily dragged down the Australian sharemarket a day after it hit a record high, ending its two-week winning streak.
The S&P/ASX 200 closed 92.5 points, or 1.2 per cent, lower at 7588.2 on Thursday, with all 11 sectors trading in the red after the US Federal Reserve said it was still too early to cut rates.
There was a sea of red on the local bourse, but consumer staples companies (down 0.1 per cent) fended off some of the bigger losses experienced by other sectors, thanks to gains by bottle shop owner Endeavour Group (up 1.4 per cent) and Treasury Wine Estates (up 0.4 per cent).
Fisher and Paykel Healthcare Corporation cemented itself as the best performing mega-cap stock on the local bourse as its shares lifted 1.9 per cent. Northern Star Resources (up 1.7 per cent), Endeavour, Newmont Corporation (up 1.25 per cent) and QBE Insurance (up 1.1 per cent) rounded out the top five large-cap advancers.
Shares in Adelaide casino owner SkyCity rallied 6.2 per cent after it reached an agreement with regulator AUSTRAC. SkyCity told investors it revised its potential penalty costs from $NZ49 million ($45.6 million) to $NZ79 million for breaching anti-money laundering and counter-terrorism finance laws.
The regulator claimed the company allowed 59 suspicious patrons to churn more than $4 billion through its Adelaide casino.
The financials sector (down 1.81 per cent), dominated by the big four banks, was the biggest drag on the index. CBA stumbled 2.9 per cent, NAB fell 2.2 per cent, Westpac slipped 1.7 per cent and ANZ was down 1 per cent. Macquarie declined 1.2 per cent.
The biggest stocks on the local benchmark all fell: mining heavyweight BHP declined 0.3 per cent, CSL slipped 1.6 per cent and Fortescue Metal Group retreated 1.3 per cent, ending the short-lived investor euphoria after the previous session finished at a record high of 7680.70 points, boosted by hopes for interest rate cuts.
Local real estate investment trusts (REITs) Goodman Group (down 0.7 per cent), Westfield shopping centre owner Scentre Group (down 1.6 per cent) and Stockland Corporation (down 2 per cent) also declined.
Lithium miner IGO was the worst-performing large-cap stock on the local bourse, its shares falling 4.2 per cent, followed by Lynas Rare Earths (down 3.4 per cent) and ALS (down 3.1 per cent).
Shares in IGA store operators Metcash were placed in a trading halt as the company said it has entered advanced discussions in relation to the possible acquisition of Superior Food Group.
Kyle Rodda, senior financial market analyst at Capital, told investors comments from China’s vice finance minister Wang Dongwei that the government would “maintain a certain intensity in fiscal spending” this year boosted Asia’s markets and helped dull the impact of the Fed’s hawkishness.
“The markets are responding to the lower probability of a March cut from the Fed,” Rodda explained. “This presents further downside risks to stocks, especially in the event of continued strong data.”
The Fed overnight left its main interest rate steady at its highest level since 2001 and made clear that it “does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward” its goal of 2 per cent.
“We’re not declaring victory at all,” Fed chair Jerome Powell said in a press conference, adding it was unlikely the US central bank would get to that level of comfort by its next rate meeting in March.
The comments sent the S&P 500 1.6 per cent lower for its worst loss in six weeks as traders revamped their bets for when the US central bank would start easing borrowing costs. The Dow Jones lost 0.8 per cent, while the Nasdaq composite shed 2.2 per cent, weighed down by losses in tech giants Microsoft, Google’s owner Alphabet and Advanced Micro Devices.
Google’s parent company Alphabet fell 7.4 per cent despite reporting stronger profit and revenue for the latest quarter than analysts expected. Underneath the surface, analysts pointed to some concerning trends in how much Google’s parent company is earning from advertising.
The bigger challenge, though, may have been the high expectations the company is contending with after its stock soared last year by much more than the rest of the market. Other Big Tech stocks that likewise accounted for a disproportionate chunk of the S&P 500’s rally to a record were also struggling in the face of high expectations.
Microsoft lost 2.7 per cent even though it delivered stronger profit and revenue than expected. One analyst, Dan Ives of Wedbush Securities, even called its quarterly report “a masterpiece that should be hung in the Louvre.”
Tesla, another member of the group of stocks nicknamed the “Magnificent Seven,” fell 2.2 per cent. A judge in Delaware ruled a day earlier that its CEO, Elon Musk, is not entitled to the landmark compensation package awarded him by Tesla that’s potentially worth more than $US55 billion ($83.8 billion).
The Magnificent Seven were responsible for the majority of the S&P 500’s return last year, and three more members are scheduled to report their latest quarter results on Thursday: Amazon, Apple and Meta Platforms. Expectations are high for them, too.
While hosing down expectations for imminent rate cuts, Fed chief Powell said officials at the central bank have some confidence that day will arrive, but just need to see continued data confirming that inflation is heading sustainably lower. “We have confidence,” he said. “It has been increasing, but we want to get greater confidence.”
Treasury yields in the bond market erased some of their losses from earlier in the day after the Fed made that statement, which forced traders to push out some bets that the Fed could begin cutting rates as soon as March.
“Given how strong the economy has been, the Fed probably figures it can err on the side of cutting later and slower than what the market is pricing,” said Brian Jacobsen, chief economist at Annex Wealth Management.
“Come March, the Fed might want to tee up a cut.”
The Fed made clear that it will watch incoming data reports to ensure inflation is sustainably moving down toward its goal.
Tweet of the day
Quote of the day
“We believe that our policy rate is likely at its peak for this tightening cycle and that, if the economy evolves broadly as expected, it will likely be appropriate to begin dialling back policy restraint at some point this year,” Fed chair Jerome Powell said. “I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to cut rates.”
Source: Thanks smh.com