The Overnight Report: V-Day Blues

By Greg Peel

The Index Factor

It was confirmed on Friday that Afterpay ((APT)) would enter the S&P/ASX top 20 index. Yesterday the stock jumped 8.8% to a new record high.

The rally is non-fundamental – it simply reflects the fact funds or ETFs running a top 20 basket have no choice but to buy the stock, while day-traders and algos would be in there making life difficult, looking for the stag. Interestingly, the stock Afterpay replaced – Insurance Australia Group ((IAG)) – rose 0.8%.

Avita Therapeutics ((AVH)) was the worst performer (-5.3%) after dropping out of the ASX200.

Afterpay was the main talking point in what was otherwise a slow day on the local bourse. After opening directionless, the ASX200 eventually dragged itself up 17 points.

Technology was of course the standout sector (+3.0%) but how long Afterpay remains a tech stock rather than being moved into financials remains to be seen.

The other big mover on the day was consumer discretionary (+1.3%) after an ACCC survey found consumers will continue to shop online despite stores being open. Sector heavyweight Wesfarmers ((WES)) rose 2.7% to a record high.  Eagers Automotive ((APE)) jumped 5.1% after selling its Daimler truck business.

Consumer staples were also positive (+0.8%) as investors moved into the supermarkets. Presumably it’s about now people start buying for Christmas. Salmon this year? Tassal Group ((TGR)) gained 5.8% and has not lost a single fish.

The banks were nevertheless the driving force (+1.0%) after the ACCC cleared the way for National Australia Bank ((NAB)) to sell its MLC wealth management business to IOOF ((IFL)). Following on from Westpac’s promise on Friday, investors are no doubt eyeing off dividends. NAB rose 0.9%.

Losers on the day included healthcare (-1.4%) as selling continued in CSL ((CSL)), while profit-taking was evident in resource sectors after a strong run. Energy fell -0.6% and materials -0.9%.

Iron ore has finally seen a pullback, down -4% overnight.

So a bit of shuffling around without much action. Another exciting session awaits. The futures are down -18 points.

Sell the Fact(s)

It was V-day in the US as the first vaccine deliveries rolled out and amidst all the excitement the Dow opened up 280 points to a new record. That lasted half an hour, and then the Dow closed down -180.

The turnaround has been put down to the counter-effect on increasing lockdowns in the interim, or at least the fear thereof, heading into Christmas. The mayor of New York, for one, last night would not rule out re-locking down Manhattan. This would follow California, and London, and France, and Germany.

But while reality is one “fact” worthy of a sell-off last night, one presumes there was a sufficient element of traditional “sell-the-fact”. Wall Street posted an unprecedented rally in November, kicked off by Biden’s victory but accelerated by first one, then two, then three vaccines being announced.

As the first vaccine rolls out, time to lock in those profits. And as we approach year-end, bearing in mind most US companies report on a calendar year basis, it is not unusual to see fund managers beginning to lock in their returns for the sake of the stats, particularly after such a strong run.

Meanwhile, stimulus talks are “progressing”. Pull the other one.

But seriously, the bipartisan group which proposed the US$908bn package has now suggested spinning off the sticking points of state/local aid and liability protection into a separate US$160bn package, leaving a US$748bn aid plan that would provide US$300 a week in additional state unemployment benefits for four months, US$300bn in aid to small businesses and U$35bn for health-care providers.

Now that might just be something both sides could contemplate, with the case-count averaging over 200,000 per day over the past week, up 30% from two weeks earlier.

But let’s not hold our breath.

Across the pond, Boris and Ursula (EU president) have agreed to drop the Brexit deal deadline and go the “extra mile” towards an agreement Boris has suggested appears very unlikely.

How long has this been going on for now?

One interesting point last night was that the Dow fell -0.6% and the S&P500 -0.4%, while the Nasdaq rose 0.5%. Typically we would expect tech stocks in the S&P to provide more of a balance.

This suggests the Nasdaq rally was not all about S&P stocks. For example, Telsa gained 5%.

To bring this report around full circle, we note Friday is the day Tesla will finally be included in the S&P500, coming in I believe at about eighth position by market cap. That means a lot of selling elsewhere, and not just in the one stock that drops out.

Commodities

It had to happen eventually. Iron ore down six bucks.

Strength elsewhere, offset by weakness in gold, smacks of vaccine excitement.

The iron ore drop is likely why the Aussie is down -0.3% to US$0.7534 when the US dollar is down -0.3% as well.

Today

The SPI Overnight closed down -18 points or -0.3%.

China will report November industrial production, retail sales and fixed asset investment today. The US will report industrial production tonight.

The minutes of the December RBA meeting are out today.

And that’s about it.

The Australian share market over the past thirty days…