Weekly Market Update – 25 July 2022

Markets gain as investors digest Q2 earnings

Global equity markets proved stronger the week gone past, with the MSCI World Index gaining 1.56 per cent in AUD terms.

Stocks continued to their momentum as of late, with the S&P 500 and the Nasdaq now up over 8 per cent from the lows recorded in mid-June.

Following the announcements of several second-quarter earnings, many indicated a weakening economy as well as a greater resilience in corporate profits and outlooks than many had anticipated, with investors being seen moving back into ‘risk-on’ mode.

The technology and consumer discretionary sectors typically lead the way in terms of gains when investors rush to risky assets, and the last week was no exception.

Key earnings from last week were streaming giant Netflix, which reported it had lost fewer subscribers than expected in the previous quarter and anticipated resuming subscribers later in the year; the stock was up over 14 per cent for the week but this comes after a near 70 per cent drop since the start of 2022.

Additionally, EV Maker Tesla, which we hold exposure to in our Prime International SMA also reported earnings, and expectations coming into the result were gloomy following the forced closure of Tesla’s Shanghai production plant and its flagging of supply chain stresses. 

Tesla’s Q2 results saw revenue up 42 per cent from the year before, slightly below consensus estimates due to slow production. However, Tesla jumped on earnings and was up over 11 per cent for the week as Musk flagged that excess demand for its cars continues to remain strong, with waitlists to purchase a new Tesla for more than 12 months in several regions. 

Towards the tail-end of the week the market experienced a broad-based sell-off in social media shares after Snap which operates the social media app Snapchat, reported a flat increase in advertising revenue in the second quarter and failed to offer guidance for the remainder of the year, citing difficulties in charting the path forward.As a result, Snap fell 39 per cent following its earnings and is nearly 80 per cent down from the start of this year.

Although our Prime International SMA does not hold exposure to Snap, we believe the weakening result in advertising revenue provides some insight into the broader corporate environment.

When sluggish demand first appears, a reduction in advertising spending is frequently the first area of corporate budget cutting that is targeted. We have said that it might be too soon to see a significant revision in companies’ earnings, though we believe this is a precursor to what may come next.

The upcoming week proves to be one of the busiest weeks of the year for investors, headlined by the Federal Reserve’s interest rate decision, estimates of the US’s second-quarter GDP growth, and Q2 earnings, which are kicking up into fifth gear, with mega-cap tech names Meta (Facebook), Alphabet (Google), Apple Inc, Microsoft Corp, and Amazon.com Inc. are all set to report. 

Stay tuned, and we will recap the many events unfolding in next week’s update.

Federal-funds rate: another 75bps this week?

The upcoming week sees the Federal Reserve meet for its next move on interest rates, which like other central banks, have been an important topic of discussion as of late.

Notably, the Fed’s upcoming July 26-27 meeting follows two new data points, which undoubtedly clear the runway for the Federal Reserve to continue its series of aggressive interest rate hikes.

The first is U.S. job growth which saw nearly 400,000 jobs added in June alone, with unemployment now at 50-year lows, continuing to detail the extreme tightness in the U.S. labour market.

The second is the U.S.’s CPI data, which we recapped last week and came in hotter than expected, with inflation continuing to remain elevated at record highs of 9.1 per cent, the highest in over four decades.

Previous expectations were for a likely 50 or 75 bps hike, with the former being favoured, though June’s inflationary data saw a material increase in expectations. It prompted the market to predict that the Fed would now raise the federal-funds rate by at least 75bps, with markets also pricing in the possibility of a full percentage-point increase, though expectations of those levels have since been scaled back.

Several Federal Reserve leaders have already indicated a three-quarter of a percentage point increase which previously occurred in June, and should this happen; the increase would mark the fourth funds rate increase in five months.

Fed officials maintain that despite the continued series of record interest rate rises intended to rein in sky-high inflation, a soft-landing scenario can still be successfully executed to prevent the U.S. economy from tipping into a recession.

While we are by no means ruling out a potential soft-landing event, slower levels of economic activity have already been observed, and the reality is that the Federal Reserve’s window of opportunity to execute a soft-landing for the U.S economy successfully continues to shrink.

RBA Minutes: interest rates are ‘very low’

The past week saw the release of the minutes from the RBA’s July 5 meeting, in which the board raised the cash rate by 50 basis points to 1.35 per cent.

The minutes revealed little that we didn’t already know.

Members of the board commenced their discussions by recognising that inflation continues to remain elevated, contrasting the ‘transitory’ nature many central banks once thought. Additionally, the board said that the outlook for global growth for several developed economies had become more uncertain and has likely skewed to the downside.

Members continue to monitor the exceptionally tight labour market, both locally and in other developed economies, with Australia’s unemployment rate dropping to the lowest in nearly 50 years. Employment growth continues to remain strong, but the board observed that the increased availability of workers coming from overseas had little effect on Australia’s current labour shortage.

When speaking to consumer spending habits domestically, the RBA’s noted that expenditure patterns had mainly been resilient to higher inflation and increased interest rates over recent times, with spending data continuing to remain positive.

Many uncertainties continue to cloud the economic outlook, with the board stating that household budgets will likely come under continued pressure from higher prices and interest rates in the near term. However, the bank mentioned that the household saving rate built up throughout the pandemic era should act as a buffer against this short-term pressure.

The central bank also touched on interest rates directly, which it does not often do.

The board commented that given the period of elevated inflation and an extremely tight labour market, current interest rates remain “very low” and that extraordinary monetary conditions are no longer necessary.

Markets are now tipping another 50-bps cash rate increase in the RBA’s August 2 meeting, which would bring the cash rate to 1.85 per cent, while other participants are pitching an increased 75-bps hike.

Local CPI data is scheduled to release this Wednesday and will prove essential to guide the central bank’s cash rate decision next Tuesday.

 ASX Weekly Wrap  

Our local market tracked above global peers for the week, as our trade missed the global market’s disappointing Friday trade.

The ASX200 recorded the biggest gain since March, adding 2.81 per cent for the week.

The flight to risk continued to be echoed within our local markets, with small caps leading gains. Small-caps were up 5.83 per cent while mid-caps tracked closely behind, up 4.99 per cent, while large caps were up 2.2 per cent.

Better than expected US earnings saw the recently battered and bruised technology sector post healthy gains in some time, with the broader tech index up over 7.6 per cent.

This week’s rotation into growth saw Healthcare as the biggest laggard, with the broader healthcare index down 0.47 per cent, following what has been a solid period for the sector, which is up over 13 per cent in the last four weeks.

Within our Prime Australian Growth SMA, the week gone past saw a total of eighteen gainers and four detractors.

OzMinerals Limited (OZL) led the pack in terms of gains, jumping 10 per cent gain as Chinese officials commented they would again stimulate the economy after COVID-19 restrictions caused a sharp slowdown in the nation’s growth. This saw an uplift in the spot price of copper after what has been a challenging time for the commodity.

Conversely, Spark New Zealand Ltd (SPK) fell the most, dropping -2.83 per cent. This fall is a direct result of the broader market’s rotation back into growth, with SPK and comparable peers within the utility sector falling behind the market. 

We believe the infrastructure space remains attractive as it is placed well to benefit in a rising interest rate environment. Spark New Zealand Ltd (SPK) is one of our preferred exposures as the company has a track record of being well-run and paying consistent dividends.

In other market news, Megaport Limited (MP1), a cloud connectivity provider, saw its shares jump over 23 per cent for the week as the tech company released its results. MP1 saw a substantial increase in recurring revenue for Q4 FY22, which led the beaten-down tech company to do what many fail to do: report a net profit.

Additionally, several of the newly included lithium stocks in the ASX300 index saw a material uplift in their share prices, with Core Lithium Ltd (CXO), Lake Resources (LKE), and Liontown Resources Limited (LTR), up over 13 to 20 per cent, following Elon Musk’s comments on Tesla’s Q2 earnings call, where he encouraged entrepreneurs to enter the lithium refining business, as it is what he calls a ‘license to print money.’

Looking ahead

Monday 25th July 2022 – Friday 29th July 2022

  • Monday: N/A
  • Tuesday: N/A
  • Wednesday: AU Inflation Rate YoY (Q2), US New Home Sales (Jun), US Durable Goods Orders (Jun)
  • Thursday: US Fed Interest Rate Decision
  • Friday: US Personal Income (Jun), US Personal Spending (Jun)

Friday 22nd July, 5pm values

All Ordinaries 70122143.1%
S&P / ASX 20067921872.8%
Property Trust Index1416342.4%
Utilities Index7731410.5%
Financials Index61512594.4%
Materials Index148575343.7%

Friday 22nd July, closing values

U.S. S&P 5003962992.6%
London’s FTSE72761171.6%
Japan’s Nikkei2791511274.2%
Hang Seng206093121.5%
China’s Shanghai3270421.3%

Key dividends

Monday 25th July 2022 – Friday 29th July 2022

  • Monday: Div Ex-Date – Praemium Ltd (PPS) Div Pay-Date – VanEck MSCI International Quality ETF (QUAL)
  • Tuesday: Div Ex-Date – Bank of Queensland Capital Notes (BOQPE), Bank of Queensland Limited Capital Notes 2 (BOQPF)
  • Wednesday: N/A
  • Thursday: Div Pay-Date – VanEck MSCI International Quality (Hedged) ETF (QHAL)
  • Friday: Div Pay-Date – James Hardie Industries plc (JHC)


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 MillerT: (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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