For Market Close on Thursday, I wrote I expected the ASX to have a green day on Friday after NVIDIA’s aftermarket results overnight Wednesday US time appeared to have saved the market. That, clearly, was wrong – something I hate to admit, but am willing to do.
So what he hell happened? I have six-dot-point theory. Here’s my take on what went wrong.
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- US Jobs data for September came out overnight and it showed a more resilient jobs market than what was perhaps expected. In September, the US economy added over 110,000 jobs; unemployment ticked up but only slightly to 4.4%. This in turn challenged the theory a Fed December rate cut is locked in. This was the first instance of panic.
- At the same time, traders also learned the US government wouldn’t be releasing jobs data for October, that created further panic. It’s also now known the Fed won’t see November jobs data until after it meets in December, meaning the Fed is flying blind, and may be more inclined to keep rates on hold.
- This was enough to scare those trading Wall Street on US economic data out of the stock market and into bonds.
- This then panicked AI investors who presumably transfixed by NVIDIA and AI-sector hype (read: blinded by their own enthusiasm), tech traders began taking profits ahead of the weekend in a response to those exiting the stock market.
- With the market falling and AI stocks declining, those tech traders panicking about the economic traders panicked everybody else, leading to a domino-effect style run on Wall Street, where I’m going to say it probably isn’t unreasonable to use the term ‘mass hysteria.’
- With Wall Street ending the Thursday US session on a resolutely shit note, that in turn – as ever – soured sentiment down under (despite the fact tech earnings, let alone what Wall Street does overnight, doesn’t really affect Australia fundamentally; either its market or its economy.)
That’s what I’m pretty sure went down. I may need to come back and make corrections to this, but I’m pretty sure that’s more or less in the ballpark.
But you can’t really blame tech investors for panicking. Over the last 4 weeks, some US$2.5B per week (on average) has flowed out of the Wall Street tech sector, which is the largest outflows recorded ever since Bank of America began keeping track of that data in 2008.
The way the Mag7 (or Mag10 if you prefer) has been behaving the last few years, this probably comes as a surprise to nobody, that we see this April 2-style sell-off event occur.
It’s not the first test we’ve seen to AI sentiment broadly, but it does follow NVIDIA’s results being well-received this week, however, analysts have calmed down on the multi-trillion AI microchip giant in recent history. In 2023, analysts were calling the company’s revenue growth “insane.” Now, it’s just ‘more of the same.’ That’s an issue, here, too.
Asia-region concerns second best to US jobs
There are other things to worry about, too. Japan’s upcoming plans for stimulus have seen the safe-haven-currency asset Japanese Yen tumble; Japanese government bonds are also rocketing higher as investors ditch the assets due to uncertainty, making yields go higher to attract buyers back in.
Meanwhile, China and Japan appear to be on the cusp of a trade war, adding to that uneasy-on-again-off-again trade war between America and China; if Japan and China start their own side beef, if you will, that means the world’s top #3 economies are all too busy bickering to actually, you know, act like strong economies.
And at the same time, all three countries – the United States, China, and Japan – are planning stimulus packages.
The US Fed is stopping quantitative tightening in December; Canada is doing something similar, and there’s more money floating around the world than ever before. That all boils down to one depressing likelihood: we’re going to see an uptick in global inflation.
So what’s this mean for Australia?
I’m going to go ahead and call it: we won’t see a Santa Rally this year, and we’re most probably not heading back towards intrayear records well above 9,000pts before NYE.
In fact, as of 2.30pm AEDT on Friday 21 November, the YTD returns for the ASX200 are looking like +3%. Year on year, right now, the market has basically offered no real return, more or less flat (unless you consider +1% growth meaningful. Depends on how you look at it.)
At least we’re not at April 2 levels of devastation, so that needs to be kept in mind. But whether you want to call this month’s market performance reminiscent of a ‘correction’ or a ‘crash’ or a ‘reversal’ doesn’t really matter. On a vibes-based analysis, all words fit.
Outside of that not-too-hard-to-predict forecast, I’m not going to say when I think the ASX might stage a recovery back to 9,000. It could be the kind of thing we don’t see until March next year, but right now, there’s as much geopolitical macro uncertainty as ever, and America remains highly – highly – unpredictable.
If Trump had been counting on a government shutdown to push the Fed towards a rate cut call, that might have backfired. And after Democrat victories in the last few weeks, particularly for that of New York’s mayor, it’s possible that Trump may backpedal towards a relative normalcy.
Clearly, the dry-boring-predictable world of US economic data remains a force to be reckoned with, that’s about the only conclusive thing we’ve learned this week. Have a great weekend, maybe just don’t bother checking your portfolio. I know I’m not going to be.
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