US equities lower, but is the market cheap or expensive?

 

US equities were lower in Thursday trading, though finished a bit off off worst levels as S&P closed just above the key 3900 level.

The Nasdaq Composite shed 1.43 per cent while the S&P 500 fell 1.13 per cent The Dow Jones Industrial Average outperformed but still dropped 0.56 per cent,

Shares of Adobe weighed on the Nasdaq and S&P 500. The software stock lost more than 16 per cent after the company announced a $20 billion deal to buy Figma. The weakness spread to other tech stocks, with Apple falling 1.9 per cent and Salesforce sliding 3.4 per cent.

Bank stocks were a bright spot, with Goldman Sachs and JPMorgan rising more than 1 per cent apiece. UnitedHealth Group rose 2.6 per cent.

A mixed batch of economic reports on Thursday did little to bolster investor confidence. Initial jobless claims came in better than expected, but import prices saw a smaller drop than estimates suggested. Retail sales beat expectations, but were negative when excluding autos. Manufacturing data also showed a slowing economy.

Big headline today the threatened US rail strike was averted after White House and unions reached a tentative deal this morning.

Of note, uranium funds have soared amid growing interest in nuclear power. Uranium funds have surged from their summer lows as the global energy crisis revives interest in nuclear power. Note that the $1.80B Global X Uranium ETF has rallied by about 30 per cent, while the $1.00B Sprott Uranium Miners ETF is up almost 43 per cent from the July 6 lows.

Across the sectors energy weakened again as oil pulled back. Semis, media and entertainment, IT and communications equipment, software, utilities, precious metals, freight and logistics are some other underperformers. Banks, hospitals, pharma, homebuilders fared better. Managed care was a standout.

So is the market cheap or expensive ?

The market became 20 per cent cheaper during this year’s sell-off. With the market P/E moving from 22 to 18. Valuations now are right back where they were in late 2019 however the environment was vastly different then. CPI inflation was about 2 per cent; now it’s about 8. Ten-year rates were two per cent, not today’s three and a half. All these contrasts should argue for a lower market multiple today than in 2019 – inflation, with its accompanying volatility and uncertainty, should compress multiples. Historically, when inflation, as measured by the consumer price index (CPI), is above 5 per cent, the S&P 500 has traded at 12 times the earnings it generated over the prior year. However markets don’t go down because they are expensive and they don’t rise because they are cheap. But long-term returns and valuations are firmly linked and from that point of view, the current market is not particularly appealing.

However given the DNA of the market, the market’s belief deep down, has not changed. The Fed will always fold on interest rates, the market only goes up, and tech will always lead the market . . . there are only three things that drive markets — positioning, policy, and profits.

For the time being the old market adage rings true – Don’t fight the Fed,

Currencies

One Australian dollar at 7:15 AM has weakened compared to the US dollar yesterday, buying 67.04 US cents (Thu: 67.49 US cents), 58.45 Pence Sterling, 96.18 Yen and 67.05 Euro cents.

Commodities

Iron ore futures are pointing to a 0.8 per cent fall.

Gold dropped to its lowest level since April 2020 on Thursday, hurt by elevated US Treasury yields and a firm dollar.

Gold lost $31.80 or 1.9 per cent to US$1677 an ounce.

Silver was down $0.30 or 1.5 per cent to US$19.27 an ounce.

Copper dropped $2.95 or 0.8 per cent to US$349 a pound.

Oil lost $3.38 or 3.8 per cent to US$85.10 a barrel.

Futures

The SPI futures are pointing to a 0.7 per cent fall.
 
Figures around the globe

Across the Atlantic, European markets closed mixed. Paris fell over 1 per cent, Frankfurt lost 0.6 per cent and London’s FTSE closed 0.1 per cent higher.

Asian markets closed mixed. Tokyo’s Nikkei added 0.2 per cent, Hong Kong’s Hang Seng gained 0.4 per cent and China’s Shanghai Composite closed 1.2 per cent lower.

Yesterday, the Australian sharemarket added 0.2 per cent to close at 6843.

Ex-dividends

Austco Healthcare (ASX:AHC) is paying 0.3 cents fully franked
Ariadne Australia (ASX:ARA) is paying 0.75 cents fully franked
Carsales.Com (ASX:CAR) is paying 24.5 cents fully franked
Cronos Australia (ASX:CAU) is paying 1 cent fully franked
Peet (ASX:PPC) is paying 4 cents fully franked
Supply Network (ASX:SNL) is paying 20 cents fully franked

Dividends payable

Argo Investments (ASX:ARG)
Ashley Services Group (ASX:ASH)
Bapcor (ASX:BAP)
Bailador Technology Investments (ASX:BTI)
Endeavour Group (ASX:EDV)
Hitech Group Australia (ASX:HIT)
Iph (ASX:IPH)
Navigator Global Investments (ASX:NGI)
Oz Minerals (ASX:OZL)
Partners Group Global Income Fund (ASX:PGG)
Pinnacle Investment Management Group (ASX:PNI)
Whitehaven Coal (ASX:WHC)

IPO

There is one company set to make its debut on the ASX today. Keep an eye out for Octava Minerals (ASX:OCT) after raising $6 million at 20 cents per share.

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.
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Source: Finance News Network