Red everywhere, inflation data sends market lower, momentum stocks hardest hit

 The S&P/ASX200 opened the day reasonably well despite growing negativity in the markets ahead of the Federal Reserve’s impending rate decision.
 
But the release of Australian CPI data reversed that trend with the market trading more than 3 per cent lower but ultimately finished 2.5 per cent or 180 points down.
 
At this point, it is important to keep the headlines, like $50 billion loss for example, in the context given the market is valued at more than $1 trillion.
 
The trigger was an inflation rate that was the highest since 2014, hitting 3.5 per cent in the 12 months to January.
 
It is nowhere near the 7 per cent in the US, but seemingly of similar concern to traders and experts.
 
The ‘underlying’ inflation which removes more seasonal impacts was a more reasonable 2.6 per cent.
 
Once again, surging petrol prices and the cost of dwelling construction were the largest contributors to the result, suggesting it isn’t necessarily due to an economy overheating.
 
It was therefore surprising that the two sectors most likely to benefit from inflation, being financials and energy, were down the most on the day, falling 4.1 and 2.7 per cent.
 
Every sector fell but consumer staples and healthcare outperformed, as usual, falling less than 2 per cent.
 
On a stock-specific level, the companies trading on frothy valuations and benefitting from momentum were hardest hit, with battery commodity producer Liontown (ASX: LTR) down 9.9 per cent and Pilbara Minerals (ASX: PLS) down 6.3 per cent, amid a flight to quality.
 
Beach cuts guidance, Codan sales surge, Fortescue quality falls, confidence shot
 
Not unexpectedly following yesterday’s economic data, but business confidence fell a full 24 points to negative 12 in January, as companies struggle to deal with a lack of inventory, staff and ultimately demand as the population remains in isolation.
 
It didn’t stop metal detector group Codan (ASX: CDA) from gaining 16.9 per cent after announcing a 32 per cent increase in first-half sales to $257 million and a 21 per cent jump in profit.
 
The reason for the strength, according to management, was planning ahead and actually having stock on hand, it was one of just eight companies that finished higher.
 
Beach (ASX: BPT) owner of the Cooper Basin projects fell 7.8 per cent after downgrading production guidance by 7 per cent on unplanned maintenance.
 
Sales volumes of gas fell 5 per cent but revenue increased 3 per cent to $398 million for the quarter after the surge in the oil price.
 
Fortescue (ASX: FMG) also took another 5 per cent hit, after announcing it had beat its iron ore export target but noting that the price penalties for their lower quality iron ore meant sales of just 68 per cent of the benchmark iron ore price, down from 91 per cent in 2020.
 
Finally, Zip Co (ASX: Z1P) confirmed rumours they were considering an offer for competitor Sezzle (ASX: SZL) with the latter up 9.8 per cent on the news.
 
Fed meeting begins, market weakness continues, IBM, American Express deliver
 
The weakness in markets continued overnight, with the trend of an early selloff and gain during the session playing out once again.
 
The Nasdaq continues to underperform as earnings season gathers steam and trades exit high growth, lower quality positions, falling 2.3 per cent.
 
The Dow Jones and S&P500 both outperformed, losing 0.2 and 1.2 respectively as the Federal Reserve begins their long-awaited policy meeting with many suggesting a rate hike as early as March is now the most likely result.
 
American Express (NYSE: AXP) gained more than 9 per cent after the company reported record levels of spending in the final quarter of 2021.
 
Powered by a surge in millennial consumption, the company saw profit grow by 20 per cent and forecast more of the same for 2022.
 
They noted that millennial credit spending is up 50 per cent on 2019 levels and travel spending hit 82 per cent of its pre-pandemic high.
 
International Business Machines (NYSE: IBM) also reported the best sales growth in a decade, with revenue up 6.5 per cent after last year’s decision to split out their non-core business lines to focus on their hybrid cloud and associated software.
 
Management is forecasting single-digit sales growth in 2022 with shares up 5.6 per cent in response.
 
Both results have highlighted the renewed focus on company-specific earnings results amid broader weakness.

Drew Meredith

Drew is publisher of the Inside Network's mastheads and a principal adviser at Wattle Partners.