The ASX is higher today.
The S&P/ASX200 closed up Thursday, gaining 78.30 points or 1.12% to 7,071.00 and setting a new 20-day high. Over the last five days, the index has gained 1.38%, but is down 5.02% for the last year to date.
The top performing stocks in this index were Life 360 Inc up 13.26% and Novonix Ltd (ASX:NVX) up 10.85%.
What’s making news
To bee or not to bee
Despite people being locked down, it seems dating apps were on the rise during the last six month. One app, in particular, proves the point.
Bumble surpassed estimates, but there are headwinds.
“Many may think the fear of inflation and recession are slowing down the dating scene. One of the most popular dating apps in Australia, Bumble, seemed immune to the macro picture, with its stock climbing 20 per cent in the last six months. However, despite revenues beating expectations, its guidance for the year has disappointed investors,” eToro market analyst Josh Gilbert said.
“This buzzing outperformance has come from its growth in paying users, new international market rollouts and product launches.
"Revenues were up 20%, with each user spending more in 2022 than in 2021. In Australia, Bumble is the most popular app for singles, according to App Store downloads.
“With the stock tumbling after hours, it's likely fairly priced around $30 and won’t be setting the world alight with a strong rally from its lows this year. Its softer Q3 and yearly guidance won’t help, but we could see an improvement in the numbers if the dollar starts to weaken.”
Are we there yet?
MFS Investment Management portfolio manager and global investment strategist Robert Almeida discusses whether we are in a market rally and if it has already bottomed.
“When the S&P 500 Index bounced more than 12% from mid-June until the end of July, investors started asking whether the market had bottomed. While that’s impossible to answer without hindsight, here are a couple of historical observations to provide some perspective."
A market rally is an event, almost like a party. Once the momentum gets going, everyone wants to be there. Late arrivals don’t know what they’re celebrating, they just know that it’s the place to be and consequences are an afterthought.
Market bottoms are more of a process than an event, and like hangovers, they take time to recover from and are often tinged with regret. A bottoming process weeds out the overleveraged and those who have stayed at the party too long. The aftermath of the bursting of the dot-com bubble from 2000 to 2002 and the fallout from the global financial crisis in 2008 and 2009 are good examples.
“While holdings data suggest institutions (mutual funds, hedge funds, pension plans, etc.) materially de-risked their books in 2021 and have done the same in 2022, equities held by US households remain near all-time highs, according to the US Federal Reserve," Almeida continued.
"Historically, bottoming processes are cleansing mechanisms. During the cleansing process, everyone feels the pain, but I wonder whether we’ve felt enough yet.”
Too imbalanced
“Economic cycles tend to end when imbalances become too big and are then sharply corrected," Almeida explained.
"In the late 1990s, the excesses were in technology hardware. We built too many personal computers and routers, laid too many fiber optic cables and so on, fueling the Internet boom. At the turn of the century, that overbuild was painfully corrected in the broad economy, in general, and in technology and Internet stocks, in particular.
"A few years later, a new bubble emerged in the form of too much credit being extended to US consumers, particularly mortgage borrowers, which of course led to gross excesses in residential real estate and banking, the correction of which spawned the global financial crisis.
“Historically, there has been a consistent pattern of recurring economic and market imbalances. But sometimes they aren’t easily detected by the lay observer because they aren’t centered around a particular industry, such as technology or housing.
“From the end of the GFC until the outbreak of the pandemic in early 2020, too much credit (both public and private) was supplied to nonbank corporations. However, that capital was not used to increase the production of goods or services, as evidenced by the anaemic growth of the 2010s, the weakest decade of growth in 150 years.
"Rather than using capital to enhance organic revenue and profit growth, businesses financed higher dividend payouts, share repurchases and acquisitions to generate inorganic growth across all sectors, excluding financials.
"This explains why the 2010s produced outsized profits but saw a feeble economic expansion and a historic gap in wealth between the owners of capital and labour. The excess of this last business cycle was corporate leverage and profits.
“In February 2020, credit availability evaporated. Companies were undercapitalized. An economic and market rebalancing began, only to be short-circuited by policymakers. As a result, more corporate debt was created and profits reaccelerated at the fastest pace on record.”
Is a bottoming process underway?
“Until the excesses of too much financial leverage, underinvestment in production and overheated profits described above are corrected, I’m sceptical about whether a durable recovery can take hold," Almeida continued.
"I’m not an economist, but it doesn’t take one to know that pandemic-era stimulus didn’t replenish depleted capital stock or lead to investment in productive assets, which would have set the stage for sustainable economic growth.
"Instead of investing in plant and equipment or research and development, the government issued previously unimaginable quantities of debt so that consumers could buy more goods than the economy could produce. The result? Inflation running at 9%.
“In my view, as growth continues to fade, so too will corporate revenues. Companies have fixed costs that need to be covered by revenues, and those costs are now structurally higher than before thanks to the rising cost of labor, interest on debt and environmental, social and governance (ESG) compliance, leading to what we think will be lower profit margins and an adjustment in asset prices to reflect this long overdue reality.”
When will we know?
Finally, Almeida said" “Historically, markets have tended to bottom when investors give up (stop caring, vow never to invest again and no longer ask, “Is this the bottom?”).
"I’ve lived through that twice and I don’t think we’re there yet. But when investors stop asking whether we are, we will be.
The Five at Five
Cauldron Energy hits another high-grade intersection of near-ounce-per-tonne gold at Blackwood
Cauldron Energy Ltd (ASX:CXU) ED Simon Youds said the results confirmed an exploration strategy that builds on the company's regional-scale approach to testing the Blackwood Goldfield.
Gascoyne Resources brings home the gold at Gilbey’s East and South
“We intend to discover, define and deliver higher-grade material to the mill, which has the potential to reshape our future!” said Gascoyne Resources managing director and CEO Simon Lawson.
Red River Resources continues to unearth strong gold results at Hillgrove’s Eleanora-Garibaldi prospect
Red River Resources Ltd (ASX:RVR) encountered several gold zones with grades including 9 metres at 3.4 g/t gold in drilling designed to follow-up a bonanza-grade intersection of 0.45 metres at 257 g/t gold from 467.75 metres at the Eleanora-Garibaldi prospect of the Hillgrove Gold Project.
Volt Resources to benefit from ESD’s super site development activities in the US
Volt Resources Ltd (ASX:VRC) is planning to produce battery anode material (BAM) for potential customers in the US, including the Energy Supply Developer's (ESD) super site.
Lotus Resources’ DFS to restart Kayelekera Uranium Project in Malawi demonstrates low costs and high ESG credentials
The results of Lotus Resources Ltd (ASX:LOT)’s definitive feasibility study confirm economic and environmental viability of Kayelekera, and that restarting the uranium operation will take only 15 months of construction and development.
On your six
Biotech companies are bucking general market trends.
June quarter: biotech companies buck trend that says sector moves slowly
In pre-pandemic 2020, the global biotechnology market stood at US$627.63 billion and since then it has exploded, with TechSci Research projecting it to grow at about a compound annual growth rate of 8.57% over the next five years to 2026.
The one for good luck
White Rock Minerals nears initial production with more high-grade gold hits
White Rock Minerals Ltd (ASX:WRM, OTCQX:WRMCF) MD and CEO Matt Gill speaks with Proactive’s Andrew Scott about the specific areas of two standout intersections at the Morning Star Gold Mine in Victoria.