Weekly Market Update – 7 February 2022

Volatile market results in the biggest gain & loss recorded in U.S. stock market history

Equity markets continue to remain volatile, though recorded a second straight week of overall gains of +0.93% as represented by the MSCI World Index.

Earnings season from the US remained in full swing with several mega-cap names & FAANG stocks releasing earnings to market last week.

Importantly, these mega-cap stocks drive a large chunk of the narrative for the broader stock market; when these companies beat forecasts, they tend to bring the market up, though when they underperform, it tends to spark unease and drags down the performance of the broader market.

The headline names Alphabet (Google), Amazon and Meta (Facebook) all reported Q4 earnings, which came in with mixed results and broke two historical records.

Alphabet (Google), beat consensus expectations across the board as the search-engine giant reported revenue for the December quarter at $75.3 billion, a 32% increase from the previous quarter. Post the results, Google shares surged upwards of +9% with the company also announcing a 20-for-1 stock split.

Amazon’s earnings also came in above consensus expectations despite missing on total revenue. Amazon’s cloud computing platform, AWS, increased revenue by 39.5% compared to the year prior. The company also noted it saw increased costs due to inflationary pressures and supply shortages. AMZN notched an impressive gain of +13.5% following their results.

Facebook, which recently announced the renaming to Meta posted disappointing results for the December quarter with all key metrics such as revenue and daily users falling below estimates. The company blamed the performance on continued headwinds resulting from changes Apple had made in its operating system to control users’ privacy alongside various regulatory scrutiny the company continues to battle. Meta shares plunged as much as -26.4% in trading post their results.

It was a week that will go down in the history books with two historic records being logged.

Amazon’s gains added a healthy USD$190bn to the company’s market capitalisation which netted the greatest ever one-day increase in value in U.S. stock market history.

Conversely, Facebook’s sharp sell-off resulted in the company shedding USD$237.6bn from its market capitalisation and marked the biggest one-day loss in U.S. stock market history.

To put that number into perspective, Facebook’s one day-loss is equivalent to 3 of the 4 big banks entire market capitalisation put together.

An ultra-dovish RBA – rate hike pushed back & QE scrapped

In the Reserve Bank of Australia’s first meeting of 2022, the board announced that it would continue to maintain the cash rate at 10 basis points.

This marks the thirteenth consecutive RBA meeting in which the cash rate target remains at its historical low.

Governor Phillip Lowe opened by acknowledging that the outbreak of the Omicron variant had impacted the economy, though emphasised it had not derailed the recovery as case numbers trend lower and spending picks up across the country.

Within the meeting, the RBA announced that it would cease its quantitative easing program with the bank’s $350 billion bond-purchasing program winding down towards the tail-end of this week.

Despite ceasing the QE program, Governor Phillip Lowe stressed that the action does not imply an imminent increase in the official cash rate target.

The board also noted that inflation had crept up quicker than the RBA expected, with the bank now upgrading its inflation forecasts of underlying inflation to peak at 3.25 per cent later this year and 2.75 per cent over 2023.

Although recent data showed underlying inflation sitting between the bank’s target band, Lowe deemed that it was too early to conclude if inflation sits within the bank’s target range of a sustainable 2 to 3 per cent
range.

The bank said ongoing supply-chain disruptions continue to impact figures and are one source of uncertainty the board must consider.

In the bank’s statement, the board once again reaffirmed that an increase in the official cash rate would only occur if actual inflation remains sustainably in the 2 to 3 per cent range.

In a speech to the press, Lowe commented that there is a plausible scenario for interest rate hikes to take place throughout 2022, though asserted that the bank’s board is ‘prepared to be patient’ as it continues to monitor a range of factors affecting inflation.

Importantly, the meeting highlights the contrast between the extremely dovish nature of the RBA against bank economists who- are pricing in multiple rate hikes throughout 2022.

Only time will tell but the combination of soaring inflation with falling unemployment figures could force a move out from RBA’s hand sooner than first anticipated.

Extraordinary US job data despite record COVID-19 case numbers

US Non-farm payrolls released last Friday provided investors with a sigh of relief after data published by the US Bureau of Labor Statistics showed that job numbers came in well above median forecasts.

The January jobs report was expected to be the first month that would reflect the full impact of the Omicron variant on the US labour market, with economists forecasting a steep decline in leisure and hospitality workers.

Despite these forecasts, Nonfarm Payrolls rose by 467,000 in January versus the median forecast of a 150,000 rise.

Both the high-contact leisure and hospitality industry remained resilient throughout the record wave of coronavirus case numbers with another 151,000 payrolls being added.

Furthermore, the Labour Department’s January report also showed the unemployment rate coming in marginally above expectations at 4.0% vs an expected 3.9%.

January’s data now highlights the progress of recovery made by the US economy, with it now regaining more than 19 million of the original 22 million jobs lost in the initial weeks of the pandemic.

ASX Weekly Wrap

Having endured another week of extreme volatility, the S&P/ASX200 came on top gaining +1.89% for the week.

Investors seemed to favour exposure to the energy sector which resulted in the index being the strongest performer, it gained +4.9% for the week as oil prices surged to a 7-year-high of US$92 a barrel.

Financials were the worst performers, though still gained +0.98% for the week as the market interpreted the RBA’s comments surrounding their unwillingness to act swiftly on interest rate rises.

In market news, Boral (BLD) announced its $3 billion return of capital to shareholders following shareholder approval at the company’s 2021 AGM.

The payment will be compromised of $2.72 cash distribution in the form of a $2.65 per share equal capital reduction and an unfranked dividend of 7 cents per share.

In terms of our Prime Australian Equity Growth SMA, the best performing stock was Newscorp CDI (NWS).

Newscorp CDI (NWS) notched an impressive +8.10% gain for the week after the company delivered a strong Q2 earnings update to the market.

Newscorp’s revenue for Q2 rose 13% with growth being recorded across all revenue lines of the business with the company’s profitability up 30% year-on-year.

Underlying subscriber growth in the company’s Foxtel streaming business continues to grow. Binge & Kayo had an impressive 66% subscriber growth with both products now having over 1 million active subscribers each.

Brambles Limited (BXB) was the worst performer falling -1.95% for the week as investors rotated out of labour-intensive sectors which have been hit by a combination of staff shortages and higher inflation.

Despite this, we remain confident in Brambles Limited (BXB) as they derive over 70% of their total revenue from the defensive consumer-staples sector which we expect to be resilient to over the medium term.

Looking ahead

Monday 7th February 2022 – Friday 11th February 2022

  • Monday: N/A
  • Tuesday: AU NAB Business Confidence (JAN)
  • Wednesday: AU Westpac Consumer Sentiment (FEB), US Trade
    Balance (DEC)
  • Thursday: US OPEC Monthly Report
  • Friday: US Core CPI (JAN), US Federal Budget Balance (Jan), UK
    Manufacturing Production (DEC)

Friday 4th February, 5pm values

 IndexChange%
All Ordinaries 7396+130+1.8%
S&P / ASX 2007097+126 +1.8%
Property Trust Index1603+38 +2.4%
Utilities Index7146+280 +4.1%
Financials Index6260+36+0.6%
Materials Index17255-308+1.8%

Friday 4th February, closing values

 IndexChange%
U.S. S&P 5004500+681.5%
London’s FTSE7516+50+0.7%
Japan’s Nikkei274399+723+2.7%
Hang Seng24573+1023+4.3%
China’s Shanghai336100.0%

Key dividends

Monday 7th February 2022 – Friday 11th February 2022

  • Monday: Div Ex-Date – Boral Limited (BLD), Champion Iron Ltd (CIA)
  • Tuesday: Div Pay Date – Metrics Income Opportunities Fund (MOT),
    Metrics Master Income Trust (MXT)
  • Wednesday: Div Ex-Date – Australian Foundation Investment Co Ltd
    (AFI), Resmed CDI (RMD) Div Pay-Date – Centuria Capital Group (CNI)
  • Thursday: Div Pay-Date – Nickel Mines Ltd (NIC)
  • Friday: Div Ex-Date – Challenger Capital Notes 2 (CGFPB) Div Pay-Date
    – Newmark REIT Management Ltd (NPR)

Contact

Mark Johnson – Chairman of Investment Committee(03) 8825 4738
Guy Silbert – Investment Manager(03) 8825 4750

If you would like to discuss your situation, please speak to your adviser or email clientservices@primefinancial.com.au

Mark JohnsonT: (03) 8825 4738Michelle BromleyT: (03) 8825 4751
Livio Caiolfa T: (03) 8825 4748Nicole LewisT: (03) 8825 4734
Marcus AingerT: (02) 9134 6292Nicholas Miller T: (03) 8825 4722
Dylan CresswellT: (03) 8825 4707Gina McIntoshT: (07) 3557 2557
Jarrod Rodda T: (03) 8825 4729

The information in this article contains general advice and is provided by Primestock Securities Ltd AFSL 239180. That advice has been prepared without taking your personal objectives, financial situation or needs into account. Before acting on this general advice, you should consider the appropriateness of it having regard to your personal objectives, financial situation and needs. You should obtain and read the Product Disclosure Statement (PDS) before making any decision to acquire any financial product referred to in this article. Please refer to the FSG (www.primefinancial.com.au/fsg) for contact information and information about remuneration and associations with product issuers. This information should not be relied upon as a substitute for professional advice, and we encourage you to seek specific advice from your professional adviser before making a decision on the matters discussed in this article. Information in this article is current at the date of this article, and we have no obligation to update or revise it as a result of any change in events, circumstances or conditions upon which it is based.

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