July Market Update

Finance Article of The Week

Magnificient Seven to Disappoint - Author: Alex Byth (28/07/2024)

Tesla and Alphabet are the first of the Magnificent Seven to release quarterly earnings, Tesla falling 12.3% and Alphabet dropping 5%. Tesla’s posted quarterly EPS of $0.52 USD, 8 cents below the expected $0.60 and free cash flow missing by $0.58B USD. Alphabet stock fell despite beating expectations on EPS and revenue, mainly due to deceleration in growth of ad revenue comparative to Q1 reports. The lacklustre earnings reports incited a 3% slide in the ASX, the most since 2022, as Wall Street led a heavy sell-off of Magnificent Seven shares. Nvidia fell 6.8%, Meta down 5.6%, Microsoft down 3.6%, and Amazon and Apple losing 3% and 2.9% respectively. The market has recently adjusted to the Magnificent Seven by pricing in extensive expenditure on AI with the street sceptical on the Magnificent Seven’s ability to generate sufficient ROI on capex; the market shifting in favour to smaller stocks to make up returns.

Further Reading: ASX to drop, Nasdaq falls the most since October 2022

Macroeconomic Article of The Week

So Much for a “Soft Landing on Narrow Runway” - Author: Thomas Cathcart (28/07/2024)

Quarterly consumer inflation results are due to be released early this week, where the RBA is expecting a 0.8% figure, compared to experts’ predictions of between 1.0% to 1.1%. If the latter is correct, it would mean that the RBA’s preferred measure (trimmed mean CPI) has been trending at 4% for the last 12 months, signalling their sustained inability to tame inflation. It would also mean that the RBA has underestimated inflation in 3 out of the last 4 quarters. The RBA decided strongly against raising rates in 2023 despite other key central banks raising it to a 5.0%-5.5% rate because it was concerned with unnecessary unemployment. Yet the signs of excessively low unemployment are evident with unsustainable wage growth and poor productivity. Beyond persistent inflation, these figures point to a strong need for the RBA to raise rates from 4.35% immediately, even if it means falling out of favour with the current federal government.

Further Reading: Inflation to test RBA’s interest rate strategy – and credibility

Australian Market Update

ANZ Downplays Market Manipulation - Author: Luke Lyon

The ASX 200 fell 0.63% for the week, with the index recovering on Friday after Thursday’s 1.3% slip. This was largely due to the tech sell off on wall street as Tesla shares fell 12.33% in a single session on weaker than expected earnings dragging the market with it. This marked the worst trading session for the Nasdaq since 2022. ANZ is still underwater facing a probe into its $14 Billion bond sale, as CEO Shayne Elliot delivered an apology on Thursday. In similar news, the CFMEU secretary Zach Smith has denied the allegations that kickbacks to the union were involved, although a recording surfaced suggesting otherwise. Australia’s latest labour force data was released last week, with unemployment increasing by 10 basis points to 4.1% for the month of June. However, economists look towards June’s release of CPI on July 31st next week, which may force the RBA to raise rates again. The dollar is buying 0.6549 US dollars, down almost 2% for the week.

Further Reading: ANZ says bond trading scandal fallout could extend to the very top

Stock of the Week

DroneShield Limited (ASX: DRO) - Author: Luke Lyon

DroneShield Limited is a defence and technology driven company that seeks to use artificial intelligence and machine learning for use in its commercial and defence applications. DroneShield has been on a meteoric rise over the past few months, likely attributed to the AI boom affecting stocks like Nvidia, Alphabet, and Microsoft. However, after releasing quarterly earnings, the stock dropped significantly from its all-time high, losing almost 50% of its market capitalisation to date. CEO Oleg Vornik blamed the decline on an AFR news article and now deleted tweet, stating it “… essentially started the selling that people are doing now”. The report detailed revenues of $24.1 million, as well as doubling its pipeline to $1.1 billion. Despite its record revenue, investors noted slowing growth in addition to the recent cooling of AI sector stocks from earlier this year.

Further Reading: DroneShield rubbishes critics, courts politicians