InvestNow Market Wrap-Up: August 2024
Introducing Greg Smith, Head of Retail at Devon Funds, this month’s guest author of the InvestNow Market Wrap-Up.
“… The past month has been anything but dull for markets. After the “panic attack” at the start of August, global benchmarks rebounded, led by the US indices. The Dow Jones made a new record high. The S&P500 was down 6% for the month at one point (and 8.5% from its July highs), before ending August up 2.4%. Fears over a hard economic landing (and the unwinding of the yen carry trade) were put on the back burner. The start of September was marked by some brief volatility, but however overall investor optimism has been strong. Last week was the best of 2024 so far for the US indices.
The US earnings season had some high-profile ‘misses’ but was largely positive, with around 80% of S&P constituents reporting better than expected earnings and outlook statements were generally cautious but not too alarming. Lower-than-expected inflation prints also effectively locked in the view that the Fed will start easing rates at this week’s meeting, paving the way for a soft economic landing for the world’s largest economy. Fed Chair Jerome Powell also said at the central bank’s annual symposium at Jackson Hole that the time had come to cut rates.
This saw investors look for clues around the quantum and pace of easing. The steepest downward revision to US job creation figures since 2009 added to the notion that the Fed will want to get ahead of the downturn, even as much economic data has been resilient.
Back home, the RBNZ commenced down the easing path, although after a very strong performance in July, the NZX50 rose more modestly last month with a 0.3% gain. A 10% lift in benchmark heavyweight Fisher & Paykel Healthcare (now ~18% of the index) underpinned the market after the healthcare giant lifted guidance. At the other end, falls for a2 Milk (-23%) and Spark NZ (-17%) weighed, after missing the mark on earnings and guidance respectively in what was a relatively mixed reporting season.
Companies with strong offshore businesses, which counterbalanced local weakness, reported well, including Freightways and EBOS. Defensively positioned companies such as Chorus had a good story, while less so for others exposed to cyclicality including Spark NZ and Fletchers. Numbers from Auckland Airport reflected the ongoing rebound in tourism, but China visitation is still well under pre-Covid levels.
Results from the gentailers were characterised by a similar backdrop – dry weather meant low lake levels and hydro inflows below average, with the result that wholesale electricity prices are high and other sources of generation are being called upon. Companies are meanwhile pushing ahead on the renewables front, with a new deal at Tiwai providing the confidence to invest.
Away from reporting companies, there were two very notable guidance upgrades of our most important industries. Fisher & Paykel Healthcare’s surprise upgrade has since taken the healthcare giant’s share price back past the record highs seen at the onset of the pandemic in 2020. Dairy giant Fonterra’s upgrade of forecast farmgate milk prices is meanwhile providing relief for dairy farmers, and a key part of our economy.
Across the Tasman, the Australian sharemarket also rebounded strongly from the early month sell-off. It was a varied earnings reporting season, but results from the banking sector were generally well received. Australia’s most valuable company, CBA, made new record highs. Mining giant BHP came in ahead of estimates but falling commodity prices continued to be headwind, with a similar story across the mining sector, with gold a notable exception.
The AI thematic has been a dominant theme this year and also recently played a part in the corporate transaction in Australia this year, with data centre business AirTrunk being sold to Blackstone in a A$23.5 billion deal. Investors are now seeking to determine the pricing implications of the biggest data centre deal globally for other listed data centres businesses.
Looking ahead, it is quieter on the reporting front, but there are some notable releases in the next few months. ANZ, Westpac and BNZ owner NAB, are out with results. Of interest will be how the bottom lines are faring with lower rates, and whether borrowers remain in good shape.
Some retailers have navigated a challenging consumer environment better (Briscoes recently had a strong half year result) than others. Investors will be interested in whether there is any brightness on the horizon for retailers KMD Brands and The Warehouse Group when their results are released next week. Numbers from Mainfreight will also be inspected in November to see how the logistics giant is adjusting to life post the pandemic tailwinds.
Outlook statements will be important, and also it appears that a turning point beckons for many businesses, particularly if the high level of corporate bidding activity is anything to go by. The bid for the Warehouse fell at the first hurdle, but takeovers are progressing in respect of retirement care operator Arvida and Manawa Energy (by Contact Energy). It will be interesting to see whether current valuations draw out other bidders during the coming months.
Many of the tech names (and the “Magnificent 7”) that have run hard this year will be once again in the limelight during the quarterly US earnings season which starts in October. Old economy-style names will also be watched for confirmation or otherwise of a soft economic landing. Of interest will be where a rotation from large tech back to old economy and smaller cap names picks up again.
The US election will take centre stage in November. Investors appeared to take the first debate between Donald Trump and Kamala Harris in their stride. The election looks set to be close. A Trump Presidency is viewed as having inflationary implications, but supporters will also note the stock market flourished during his last term in the Oval Office. US economic data out in the coming months will be of interest to both sides, as well as the Fed.
Various central bank meetings will very much be in focus over the coming months. The Bank of England and European Central Bank are amongst those who have already started lowering rates, and expected to cut further in the coming months. The Bank of Japan is a notable outlier and increase rates further as it continues a decades-long battle against deflation. Of particular interest to New Zealand is whether officials in China heed the calls for more substantial stimulus given a soft economy. Markets are also expecting the Reserve Bank of Australia to cut rates before the end of the year, despite officials suggesting otherwise.
The Fed, as a key influencer of the world’s largest economy though will arguably be watched the most intently. Fed Chair Jerome Powell has flagged rate cuts as long as economic data plays ball. Markets are pricing in 125bps of rate cuts by the end of this year.
As for our own central bank, the RBNZ has two more meetings this year in October and November. With officials not meeting thereafter till late February it is possible that the central bank may err on the side of caution to get ahead of further weakness in the economy. Comfort can also be taken that inflation is back near the middle of their target 1-3% band. Meanwhile business and consumer confidence have been subdued, migration tailwinds are fading, and unemployment has risen.
Investors will also be looking for signals that our economy is also gliding to a soft landing. GDP, spending, confidence and employment data will all be under scrutiny in the coming months. The CPI print in mid-October will also be important in determining the size of any potential rate cut in November. The rate cut in August has already had a positive impact on business confidence, and this would likely be a kick from further easing.
New Zealand business confidence
The RBNZ is signalling that we may get up to another 50 basis points of cuts before 2024 is over. The central bank has a history of going quickly when it does cut rates. Deposit rates are going to head lower. Perhaps don’t expect an overpriced (by OECD standards) housing market to roar back, but an RBNZ in easing mood is potentially very good news for our equity market. The extent of moves here could determine how seasonally festive our benchmark index is as 2024 draws to a close …”
If you want to see which Devon investments are available on InvestNow, plus read any other opinion or commentary pieces from Greg and the team at Devon, please visit their page on our website.
InvestNow Market Wrap-Up: August 2024
Introducing Greg Smith, Head of Retail at Devon Funds, this month’s guest author of the InvestNow Market Wrap-Up.
“… The past month has been anything but dull for markets. After the “panic attack” at the start of August, global benchmarks rebounded, led by the US indices. The Dow Jones made a new record high. The S&P500 was down 6% for the month at one point (and 8.5% from its July highs), before ending August up 2.4%. Fears over a hard economic landing (and the unwinding of the yen carry trade) were put on the back burner. The start of September was marked by some brief volatility, but however overall investor optimism has been strong. Last week was the best of 2024 so far for the US indices.
The US earnings season had some high-profile ‘misses’ but was largely positive, with around 80% of S&P constituents reporting better than expected earnings and outlook statements were generally cautious but not too alarming. Lower-than-expected inflation prints also effectively locked in the view that the Fed will start easing rates at this week’s meeting, paving the way for a soft economic landing for the world’s largest economy. Fed Chair Jerome Powell also said at the central bank’s annual symposium at Jackson Hole that the time had come to cut rates.
This saw investors look for clues around the quantum and pace of easing. The steepest downward revision to US job creation figures since 2009 added to the notion that the Fed will want to get ahead of the downturn, even as much economic data has been resilient.
Back home, the RBNZ commenced down the easing path, although after a very strong performance in July, the NZX50 rose more modestly last month with a 0.3% gain. A 10% lift in benchmark heavyweight Fisher & Paykel Healthcare (now ~18% of the index) underpinned the market after the healthcare giant lifted guidance. At the other end, falls for a2 Milk (-23%) and Spark NZ (-17%) weighed, after missing the mark on earnings and guidance respectively in what was a relatively mixed reporting season.
Companies with strong offshore businesses, which counterbalanced local weakness, reported well, including Freightways and EBOS. Defensively positioned companies such as Chorus had a good story, while less so for others exposed to cyclicality including Spark NZ and Fletchers. Numbers from Auckland Airport reflected the ongoing rebound in tourism, but China visitation is still well under pre-Covid levels.
Results from the gentailers were characterised by a similar backdrop – dry weather meant low lake levels and hydro inflows below average, with the result that wholesale electricity prices are high and other sources of generation are being called upon. Companies are meanwhile pushing ahead on the renewables front, with a new deal at Tiwai providing the confidence to invest.
Away from reporting companies, there were two very notable guidance upgrades of our most important industries. Fisher & Paykel Healthcare’s surprise upgrade has since taken the healthcare giant’s share price back past the record highs seen at the onset of the pandemic in 2020. Dairy giant Fonterra’s upgrade of forecast farmgate milk prices is meanwhile providing relief for dairy farmers, and a key part of our economy.
Across the Tasman, the Australian sharemarket also rebounded strongly from the early month sell-off. It was a varied earnings reporting season, but results from the banking sector were generally well received. Australia’s most valuable company, CBA, made new record highs. Mining giant BHP came in ahead of estimates but falling commodity prices continued to be headwind, with a similar story across the mining sector, with gold a notable exception.
The AI thematic has been a dominant theme this year and also recently played a part in the corporate transaction in Australia this year, with data centre business AirTrunk being sold to Blackstone in a A$23.5 billion deal. Investors are now seeking to determine the pricing implications of the biggest data centre deal globally for other listed data centres businesses.
Looking ahead, it is quieter on the reporting front, but there are some notable releases in the next few months. ANZ, Westpac and BNZ owner NAB, are out with results. Of interest will be how the bottom lines are faring with lower rates, and whether borrowers remain in good shape.
Some retailers have navigated a challenging consumer environment better (Briscoes recently had a strong half year result) than others. Investors will be interested in whether there is any brightness on the horizon for retailers KMD Brands and The Warehouse Group when their results are released next week. Numbers from Mainfreight will also be inspected in November to see how the logistics giant is adjusting to life post the pandemic tailwinds.
Outlook statements will be important, and also it appears that a turning point beckons for many businesses, particularly if the high level of corporate bidding activity is anything to go by. The bid for the Warehouse fell at the first hurdle, but takeovers are progressing in respect of retirement care operator Arvida and Manawa Energy (by Contact Energy). It will be interesting to see whether current valuations draw out other bidders during the coming months.
Many of the tech names (and the “Magnificent 7”) that have run hard this year will be once again in the limelight during the quarterly US earnings season which starts in October. Old economy-style names will also be watched for confirmation or otherwise of a soft economic landing. Of interest will be where a rotation from large tech back to old economy and smaller cap names picks up again.
The US election will take centre stage in November. Investors appeared to take the first debate between Donald Trump and Kamala Harris in their stride. The election looks set to be close. A Trump Presidency is viewed as having inflationary implications, but supporters will also note the stock market flourished during his last term in the Oval Office. US economic data out in the coming months will be of interest to both sides, as well as the Fed.
Various central bank meetings will very much be in focus over the coming months. The Bank of England and European Central Bank are amongst those who have already started lowering rates, and expected to cut further in the coming months. The Bank of Japan is a notable outlier and increase rates further as it continues a decades-long battle against deflation. Of particular interest to New Zealand is whether officials in China heed the calls for more substantial stimulus given a soft economy. Markets are also expecting the Reserve Bank of Australia to cut rates before the end of the year, despite officials suggesting otherwise.
The Fed, as a key influencer of the world’s largest economy though will arguably be watched the most intently. Fed Chair Jerome Powell has flagged rate cuts as long as economic data plays ball. Markets are pricing in 125bps of rate cuts by the end of this year.
As for our own central bank, the RBNZ has two more meetings this year in October and November. With officials not meeting thereafter till late February it is possible that the central bank may err on the side of caution to get ahead of further weakness in the economy. Comfort can also be taken that inflation is back near the middle of their target 1-3% band. Meanwhile business and consumer confidence have been subdued, migration tailwinds are fading, and unemployment has risen.
Investors will also be looking for signals that our economy is also gliding to a soft landing. GDP, spending, confidence and employment data will all be under scrutiny in the coming months. The CPI print in mid-October will also be important in determining the size of any potential rate cut in November. The rate cut in August has already had a positive impact on business confidence, and this would likely be a kick from further easing.
New Zealand business confidence
The RBNZ is signalling that we may get up to another 50 basis points of cuts before 2024 is over. The central bank has a history of going quickly when it does cut rates. Deposit rates are going to head lower. Perhaps don’t expect an overpriced (by OECD standards) housing market to roar back, but an RBNZ in easing mood is potentially very good news for our equity market. The extent of moves here could determine how seasonally festive our benchmark index is as 2024 draws to a close …”
If you want to see which Devon investments are available on InvestNow, plus read any other opinion or commentary pieces from Greg and the team at Devon, please visit their page on our website.
