Stocks look set to open little changed after pre-empting overnight losses in the US triggered by valuation and political worries.
ASX SPI200 index futures eased a point or less than 0.1 per cent. The S&P/ASX 200 dived 61 points or 0.9 per cent yesterday as US futures signalled a looming retreat. Wall Street duly declined, but finished well off its lows as investors ‘bought the dip’.
Wall Street
US stocks fell as investors fretted over valuations ahead of a new earnings season and as the Democrats took the first step towards impeaching President Donald Trump following last week’s invasion of the Capitol Complex.
The S&P 500 declined 25 points or 0.66 per cent. The Dow Jones Industrial Average finished 89 points or 0.29 per cent lower after briefly losing more than 260 points. The Nasdaq Composite shed 166 points or 1.25 per cent.
“People are taking profits ahead of the earnings season, and investors are beginning to reflect on the market’s heights,” Peter Cardillo, chief market economist at Spartan Capital Securities, told Reuters. “This Friday the earnings season begins, and with the market at high levels, the question is will this justify the current price-earnings structure.”
Last night’s setback followed a strong start to the year that lifted stocks to all-time highs. The S&P 500 rose for four straight days last week for a weekly tally of 1.8 per cent. Concerns about over-exuberance were sharpened by a 25 per cent surge in Tesla and an explosive rally in Bitcoin.
“If you go back four decades of stock-market data, there are many valuation metrics that are in the top 1-percentile of overvaluation,” DoubleLine Capital founder Jeffrey Gundlach told CNBC.
The prospects for the quick passage of further stimulus measures were dented by moves to impeach Trump. House Democrats introduced an article of impeachment overnight charging the president with “incitement of insurrection”. Trump supporters last week invaded the Capitol, delaying the ratification of Joe Biden as next president. Political analysts said impeachment proceedings could delay stimulus legislation.
Tech stocks fell after several large firms announced punitive measures against Trump and his supporters. Twitter dived 6.4 per cent after banning the president’s account. Facebook shed 4 per cent, Alphabet 2.3 per cent and Apple 2.3 per cent.
Australian outlook
Local investors read the writing on the wall yesterday afternoon and trimmed positions accordingly. Where we go from here is less certain.
If past US earning seasons are a guide, we may see a few more days of weakness in the US as investors reduce positions before Friday, then the market should settle down. Earnings seasons tend to be choppy, but do not normally herald major sea changes in sentiment.
Valuations are inflated this time around, but the prospect of further stimulus and the absence of viable investment alternatives should keep most investors in the game. Biden is scheduled to unveil his trillion-dollar stimulus proposal on Thursday night. The worry is that a drawn-out impeachment battle will be a distraction and harden Republican resistance, making it tougher to get the votes.
The near-term domestic outlook is brighter, with few political distractions and the latest Covid-19 outbreaks seemingly under control. Greater Brisbane and Sydney’s Northern Beaches have emerged from lockdown. New locally-acquired cases yesterday were back to low levels – zero in Victoria, three in NSW.
Investors looking for positives today may take heart from US sector analysis: the two most important sectors in Australia – financials and materials – avoided the downturn. Financials gained 0.4 per cent. The materials sector closed flat despite setbacks for copper and iron ore. Energy was the best performer with a rise of 1.6 per cent. Health stocks gained 0.5 per cent.
Weekly consumer sentiment and credit card spending reports are due today. Wall Street’s economic calendar is thin until later in the week.
The dollar continued to retreat from last week’s near three-year peak. The Aussie eased 0.23 per cent to 77.02 US cents.
Commodities
BHP and Rio Tinto logged solid falls in overseas trade as iron ore and copper declined. BHP’s US-listed stock gave up 2.99 per cent and its UK-listed stock 2.57 per cent. Rio Tinto shed 3.56 per cent in the US and 1.84 per cent in the UK.
The spot price for iron ore landed in China fell 65 cents or 0.4 per cent to US$171.10 a tonne. US-traded copper tumbled 10.9 cents or almost 3 per cent to US$3.5645 a pound, its heaviest loss since October.
US gold stocks slid for a second day despite a rebound in precious metals. Gold for February delivery rose $15.40 or 0.8 per cent to settle at US$1,835.40 an ounce. Silver bounced 2.6 per cent. The NYSE Arca Gold Bugs Index eased 1.9 per cent.
Oil was pressured by a rebound in the US dollar. Brent crude settled 33 cents or 0.6 per cent weaker at US$55.66 a barrel.