Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

Global Market Report - 02 May

Lewis Jackson  |  02 May 2022Text size  Decrease  Increase  |  
Email to Friend

Australia

Australian shares are set to fall after a broad selloff wracked Wall Street on Friday amid a sharp decline at Amazon.com and concerns over rising rates. The Reserve Bank's board meets on Tuesday, where many expect the first rate rise since 2010.  

ASX futures were down 94 points or 1.3% at 7315 as of last trade on Saturday, suggesting a negative start to the week.

The Nasdaq dropped 4.2% Friday, bringing its losses for the month to more than 13%, its worst showing since October 2008. The index is down 21% in 2022, its worst start to a year on record. The Dow sank 2.8%, and the S&P declined 3.6%. Both indexes logged their worst months since March 2020.

Investors sent Amazon.com shares tumbling 14% on Friday, their biggest one-day drop since at least 2014. The company posted its first quarterly loss in seven years amid rising costs and a slump in online shopping.

The punishing declines in tech and growth stocks mark a dramatic shift from recent years. Investors have ditched shares of some of the biggest tech companies, which had been stock-market darlings for much of the past decade and propelled the indexes's gains from the pandemic lows.

Within just a few months, some of the most reliable winners morphed into losers. Netflix dropped 49% in April. Nvidia fell 32%. And PayPal Holdings declined 24%. All three stocks are down more than 35% in 2022.

Worries about the Federal Reserve raising interest rates, soaring inflation and the path of the economy have brought stocks sharply lower from the record levels they started the year. Many pandemic-era winners have also come falling back to earth as consumer tastes have evolved since 2020.

Investing Compass
Listen to Morningstar Australia's Investing Compass podcast
Take a deep dive into investing concepts, with practical explanations to help you invest confidently.
Investing Compass

"We're going into a higher volatility regime, when fundamentals matter again," said Aashish Vyas, investment director at Resonanz Capital. "It does seem like we are at a systemic shift."

Locally, the S&P/ASX 200 closed 1.1% higher at 7435 on Friday, as widespread gains pared the benchmark index's weekly loss.

Tech stocks led gains, rising 2.25% following a rebound by their US-listed counterparts, while nine of the ASX 200's 11 sectors rose 1% or more.

The three largest tech companies by market capitalization, WiseTech, Xero and Computershare, put on between 2.1% and 3.1%.

The heavyweight financial sector rose 1.2%, as banks Commonwealth, ANZ, Westpac, NAB and Macquarie added between 0.6% and 1.8%.

Zip Co. jumped 7.9% after Sezzle, which it is set to acquire, announced cost cuts.

Kogan.com sunk 13.9 per cent to a more than two-year low of $3.91 after announcing gross sales were down 3.8 per cent in the March quarter compared to a year ago.

Chief executive Ruslan Kogan said "market conditions are challenging at present" and the online retailer would focus on recalibrating inventory levels, after mistakenly preparing for continued strong growth this year.

ResMed dropped 4.1 per cent to $29.14 after the respiratory care device manufacturer announced that higher freight and manufacturing costs had reduced its profit margin in the March quarter.

The ASX 200's 0.5% weekly loss rounded out a 0.9% decline for April.

In commodity markets, iron ore rose 0.2% to $US142.35 a tonne; gold futures added 1.1% to $US1911.70 an ounce; Brent crude oil eased down 0.1% to $US107.14 a barrel.

Selling resumed in bond markets and the yield on the Australian 2 Year government bond edged up to 2.42% while the 10 Year moved higher to 3.12%. Overseas, yields on US Treasury 2 Years advanced to 2.71%, while the 10 Year finished rose to 2.93%.

The Australian dollar continued to fall, buying 70.60 US cents as of last trade on Saturday, down from the previous close of 70.96. The Wall Street Journal Dollar Index, which tracks the US dollar against 16 other currencies, edged down to 95.51.

Asia

Chinese stocks rose sharply on Friday after Beijing promised to step up policy support in order to meet this year's official economic targets.

Information technology, nonferrous metals and auto sectors all strengthened, while individual stocks were lifted by strong earnings. Tianqi Lithium jumped 10%, Great Wall Motor added 8.0% and Yonyou Network Technology was 8.1% higher. Cnooc surged 10% post-earnings, China Vanke and Haier Smart Home rose 3.6% and 5.6%, respectively, after their results, but Wuliangye Yibin lost 2.2%.

The Shanghai Composite Index gained 2.4% to 3047.06, paring this month's decline to 6.3%, but that still makes April the second-worst month this year. The Shenzhen Composite Index advanced 3.9% and the ChiNext Price Index was 4.1% higher.

Hong Kong stocks similarly ended the session sharply higher on the back of promises of policy support from Beijing. The Hang Seng Index jumped 4.0%, its largest one-day gain in over a month, to settle at 21089.39.

The Hang Seng TECH index rose 10%, as Chinese internet giants led the upturn, in part due to rising hopes that they could keep their US listings after a Bloomberg report said Beijing is in talks with American regulators about resolving an audit issue that has threatened to delist Chinese companies from New York. Both Alibaba and JD.com surged 16% to become the top gainers on the index. Both companies have US listings. Consumer companies offered further support; China Resources Beer rose 4.6% and Li Ning gained 4.3%.

The Japanese share market was closed Friday for a public holiday.

Europe

European stocks closed higher on Friday after Chinese authorities vowed to boost stimulus to safeguard the economy from widespread coronavirus shutdowns.

The Stoxx Europe 600 rose 0.7%, London’s FTSE 100 added 0.5%, the German DAX gained 0.8% and the French CAC 40 was up 0.4%. Johnson Matthey jumped 19% to lead the Stoxx 600 after Standard Investments took a 5.2% stake in the UK chemicals group.

The Chinese Communist Party's politburo promised today to "strengthen macro adjustments" and meet growth targets.

"Higher commodity prices have helped stabilise industrial European stocks, and crucially the magic promise of Chinese stimulus has appeared, pushing up commodity prices and giving stocks across the continent a lift," IG analyst Chris Beauchamp says in a note.

North America

An April rout in technology stocks deepened Friday, dragging the Nasdaq Composite to its worst monthly performance in more than a decade, as soaring inflation and rising interest rates fanned worries of a recession.

The broad selloff has erased trillions of dollars in market value from the tech-heavy gauge, with investors souring on shares of everything from software and semiconductor companies to social media giants.

The Nasdaq dropped 4.2% Friday, bringing its losses for the month to more than 13%, its worst showing since October 2008. The index is down 21% in 2022, its worst start to a year on record.

The broader S&P 500 has fallen for four consecutive weeks, shedding 8.8% in April and bringing its year-to-date losses to 13%. The Dow Jones Industrial Average fell 4.9% this month and is down more than 9% this year. Both indexes logged their worst months since March 2020.

Friday's losses in the stock market accelerated into the closing bell, which some traders attributed to technical factors such as hedging activity and trading by leveraged exchange-traded products. The Dow sank more than 900 points, or 2.8%, and the S&P declined 3.6%.

The punishing declines in tech and growth stocks mark a dramatic shift from recent years. Investors have ditched shares of some of the biggest tech companies, which had been stock-market darlings for much of the past decade and propelled the indexes's gains from the pandemic lows.

Within just a few months, some of the most reliable winners morphed into losers. Netflix dropped 49% in April. Nvidia fell 32%. And PayPal Holdings declined 24%. All three stocks are down more than 35% in 2022.

Worries about the Federal Reserve raising interest rates, soaring inflation and the path of the economy have brought stocks sharply lower from the record levels they started the year. Many pandemic-era winners have also come falling back to earth as consumer tastes have evolved since 2020. And recently, earnings season has been dotted with some high-profile disappointments, delivering head-spinning one-day stock moves following the reports.

"We're going into a higher volatility regime, when fundamentals matter again," said Aashish Vyas, investment director at Resonanz Capital. "It does seem like we are at a systemic shift."

The FAANG stocks, consisting of the popular quintet of Facebook-parent Meta Platforms, Apple, Amazon.com, Netflix and Google-parent Alphabet, have collectively lost more than $1 trillion in market value this month, the most since Facebook started trading in May 2012.

Investors say they will be tracking the next batch of earnings results in coming days for signs of slowing growth from other companies. So far, corporate profits are on track to rise 7% for the quarter, according to FactSet, the lowest year-over-year earnings growth rate since the last quarter of 2020.

There have been some high-profile disappointments.

Amazon shares fell 14% on Friday, their biggest one-day drop since at least 2014 and bringing their losses for the year to 26%. The company posted its first quarterly loss in seven years -- a result that reflected broad economic trends related to a slump in online shopping, higher costs from inflation and supply-chain woes, and market jitters over electric-vehicle startups.

Apple cautioned Thursday that the resurgence of Covid-19 in China threatens to hinder sales by as much as $8 billion in the current quarter. Shares fell 3.7% Friday and have dropped 11% for the year. Last week, Netflix shares recently tumbled more than 30% in a single session after the earnings report showed the company lost subscribers. Moves in large technology companies can have outsize impacts on major stock indexes due to their higher weighting relative to other stocks.

Also driving the volatility? Yields on traditionally safe government debt have rapidly climbed. The yield on the benchmark 10-year Treasury note rose to 2.885% to end April, notching its biggest monthly gain since December 2009. These higher yields have dented the allure of tech and growth stocks, making shares of firms whose profits may lie further out in time less attractive.

For much of the month, many traders and market watchers have remained fixated on another matter: the drama surrounding Twitter. Tesla Chief Executive Elon Musk took a stake in the company and then reached a deal to buy it. The negotiations throughout the process spurred intense volatility in shares of both companies. Twitter shares jumped 27% in April to lead the S&P 500, while Tesla shares shed 19%.

Many investors have grown more concerned about a recession, driving swings across global markets. The war in Ukraine has driven commodity prices higher when inflation has already been at a 40-year high. Meanwhile, the Federal Reserve faces an especially tricky path to tame inflation by raising interest rates while not substantially raising unemployment.

"There's this massive escalation of recession fears," said Jim Paulsen, chief investment strategist at The Leuthold Group. "I think there's a lot more fear there than is probably necessary."

The latest gross domestic product data showed that the economy recently contracted for the first time since early in the pandemic. Meanwhile, inflation accelerated in March to its fastest pace since 1982, measured by the Federal Reserve's preferred gauge.

Still, despite higher prices, US consumer spending for March increased 1.1% from the prior month, showing that American households are absorbing high inflation.

Some investors say shares of some tech companies look attractive after the recent selloff, and that they would consider stepping in to buy shares after the steep drop. The Nasdaq is now down 23% from its high and trading at levels not seen since 2020.

The giant swings haven't been contained to just tech stocks. Investors around the globe have been alarmed by the dramatic moves in assets from currencies to bonds.

In currency markets, the dollar has been soaring while the yen has been falling. The yen, a typical haven for investors around the globe, recently tumbled to a 20-year-low against the dollar, upending the typical dynamics across global markets and stirring unease among investors.

The WSJ Dollar Index has strengthened this year in anticipation of Fed rate increases, which are expected to happen faster and more aggressively than in the eurozone and Japan.

is a reporter and data journalist with Morningstar. Tweet him @lewjackk or get in touch via email

AAP logo

© 2022 Australian Associated Press Pty Limited (AAP) or its Licensors. This is the Morningstar service with content provided by AAP where indicated. AAP reserves all rights, including copyright, in services provided by it. The information in the service is for personal use only, does not constitute financial product advice (whether general or personal) and may not be re-written, copied, re-sold or re-distributed, framed, linked or otherwise used whether for compensation of any kind or not, without the prior written permission of AAP. You should seek advice from a professional financial adviser before making decision to acquire or dispose of a financial product.

This service is published for general information purposes only without assuming a duty of care. AAP is not in the business of providing financial product advice (whether personal or general advice), and gives no warranty, guarantee or other representation about the accuracy of the information or images contained in this service. AAP is not liable for errors, omissions in, delays or interruptions to or cessation of the services through negligence or otherwise. The globe symbol and "AAP" are registered trademarks.

Email To Friend