The boards ran red as a steep sell-off on Wall Street dragged the ASX to its biggest loss in four months.
The S&P/ASX 200 finished 131 points or 1.93 per cent lower after being down as much as 2.7 per cent. The decline was the largest since a 136-point dive on September 30.
What moved the market
Investors charged the exits following Wall Street’s worst night in three months. Ten of the eleven domestic sectors declined. The high-flying tech sector tumbled almost 5 per cent. The top 20 largest companies by market capitalisation all fell.
The S&P 500 plunged 2.57 per cent overnight as concerns about stretched valuations and manic speculative behaviour reached tipping point. The Dow lost 2.05 per cent and the Nasdaq 2.61 per cent.
The Federal Reserve may have unwittingly thrown fuel on the fire by warning the economic recovery had flagged as Covid restrictions crimped spending.
“The path ahead remains highly uncertain,” Chair Jerome Powel said. “We’re a long way from a full recovery,” he added.
Fears of a market bubble have increased in recent days as retail traders used chat rooms to mount “short squeezes” on hedge funds that had bet stock prices would go lower. Reddit retail favourites GameStop and AMC surged more than 100 per cent overnight, forcing some funds to sell other positions to meet margin calls.
Some commentators saw the phenomenon as a sign stock valuations had lost touch with fundamentals. “This is a time for caution for investors,” Scott Knapp, chief market strategist at CUNA Mutual Group, told CNBC. Recent surges in initial public offerings, cashbox listings, Bitcoin and speculative stocks were all “data points supporting a market bubble thesis,” he said.
The speculative end of the local market took a bath today. The S&P/ASX Emerging Companies Index slumped 3.5 per cent.
Winners’ circle
Today’s winner’s list was the shortest in months. Among the best performers were some of the most shorted stocks on the ASX – a sign local retail traders may be mimicking their US counterparts by buying stocks that fund and hedge managers expect to decline.
Funeral company InvoCare surged 5.7 per cent to its highest level since March. The company is among the top ten most shorted stocks on the ASX, according to Rivkin Securities. Other companies on the list to rally today included Tassal Group +3 per cent, Webjet +1.5 per cent and Inghams +4.4 per cent.
The local listing of European shopping mall operator Unibail-Rodamco-Westfield – heavily shorted in Europe – jumped 14.4 per cent. Out-of-favour wine company Treasury Wine Estates rallied 5.9 per cent.
The defensive utilities sector bucked the broader market trend, rising 0.3 per cent as AGL Energy bounced 0.8 per cent from a 12-year low and APA Group edged up 0.4 per cent.
At the speculative end, a local miner with the same stock code as GameStop – GME – has almost doubled in value in two sessions. GME Resources finished 13.3 per cent ahead today at 8.5 cents after trading as high as 12 cents.
Doghouse
Ten of eleven sectors declined, led by a 4.8 per cent drop in the tech sector. Xero tumbled 6.3 per cent, Afterpay 6.2 per cent and WiseTech 6.1 per cent.
CSL sagged 3 per cent to its lowest level since the March pandemic plunge. The big four banks shed between 0.9 and 1.7 per cent. Mining giants BHP and Rio Tinto gave up 1.7 and 2.9 per cent, respectively.
Positive earnings news was trampled in the rush to the exits. Fortescue Metals reported a record half but saw its share price skid 4 per cent. Newcrest CEO Sandeep Biswas declared “excellent progress in relation to our expanding exploration portfolio” and was rewarded with a share price decline of 2.8 per cent.
Evolution Mining dipped 3 per cent after reaffirming full-year production guidance. Lithium miner Galaxy Resources dropped 2 per cent despite predicting a “very strong year of demand”.
Nickel sulphide miner Western Areas sagged 16.6 per cent after warning it expects production to be at the lower end of guidance and costs at the higher end. IGO eased 1.2 per cent after reporting a 3 per cent decline in half-year revenue due to lower production and sales.
News of a $0.4 billion first-half decline in funds under management helped send IOOF Holdings down 10.6 per cent. Investors shrugged off another record quarter from BNPL player Splitit, dropping the share price 2.7 per cent.
Other markets
Asian markets followed US futures lower. China’s Shanghai Composite shed 1.48 per cent, Hong Kong’s Hang Seng 1.97 per cent and Japan’s Nikkei 1.62 per cent. S&P 500 futures faded 14 points or 0.37 per cent.
Gold declined for a sixth session, retreating $9.50 or 0.5 per cent to $US1,835.40 an ounce.
Oil faded with other risk assets. Brent crude fell 35 cents or 0.6 per cent to $US55.18 a barrel.
The dollar eased 0.25 per cent to 76.29 US cents.
Hot today and not today
Hot today: Shares in lithium hopeful Hawkstone Mining (ASX:HWK) have gone up fivefold in three weeks as the company moves nearer to production. Shares that traded for a cent as recently as January 12 hit 6.3 cents today. The company announced preliminary metallurgical tests showed lithium recovery of 90 per cent at its Big Sandy project in the US. The company hopes to produce battery-grade lithium carbonate by the end of next month. The share price climbed 38.5 per cent to 5.4 cents.
Not today: Shareholders bailed out of Marquee Resources (ASX:MQR) after drilling at the West Spargoville project came up empty. The company reported the first 21 holes “failed to detect any significant zones of gold mineralisation”. Executive Chair Charles Thomas said the results were “well below expectation”. Results from the remaining 15 holes are expected in the next two weeks. The share price slumped 22.2 per cent.