It was a lacklustre week for the ASX200, falling by more than 1% last week with the heavily weighted materials sector a drag on the market down by 3.7%. Local tech lead gains thanks to another strong week from the Nasdaq100, setting a new record high on Thursday. Not to be outdone, the S&P500 had a solid end to the week, also taking out a new record high at Friday’s close.
3 things that happened last week:
1. Australian Unemployment Picks Up
Australia’s labour market showed further signs of easing last week, likely meaning the RBA is finished hiking interest rates. Employment fell by 65.1k in December, with the largest monthly drop in full-time employment since the pandemic, offsetting the gains in November. The unemployment rate remained at 3.9%, with the labour market on track to continue cooling in 2024. The focus now shifts to when we see the first cut from the RBA, rather than the next hike. Inflation data at the end of January will be a key data point, but it’s like more likely rate cuts will be on the horizon in the middle of the year.
2. Young Aussie investors’ dash for cash
Younger Aussie investors are twice as likely as their parents’ generation to have increased their allocation to cash assets such as savings accounts in the last six months, according to data from the latest Retail Investor Beat (RIB). In the study of 1,000 retail investors across Australia, 54 per cent of investors aged 18-34 said they upped their cash allocation in the second half of 2023 versus just 28 per cent of over 55s. The trend, which flies in the face of the traditional view of older investors favouring liquidity as they near retirement, can be explained by the reasons offered by investors.
With the cost of living crisis having a greater impact on the younger generation in 2023, we’ve seen a dash for cash in the last 6 months of the year. Soaring mortgage costs, rent and bills have caused investors to put investing on the back burner. Investors see a need for easy access to their money as they continue to weather higher living costs, whilst still getting some of the best returns on cash that we’ve seen for over a decade.
3. A winner and loser last week from the S&P/ASX200
In a tame week for most stocks, The Lottery Corporation (TLC) came out as a winner, gaining by 7.1% thanks to a broker upgrade by Ord Minnett.
Liontown Resources’ (LTR) tough few months continued, with shares down by -19.5% last week. It comes as Albemarle, the company that looked to acquire Liontown in 2023, sold down its stake in the lithium developer.
3 things to watch for the week ahead:
1. Microsoft FQ2 Earnings
After knocking Apple (APPL) off its perch in the last few weeks by taking the crown of ‘world’s most valuable stock’, Microsoft (MSFT) shareholders will expect more good news when its earnings arrive next week.
In the last 12 months, shares have had a terrific run, climbing by 70%, leaving little margin for error heading into the results. It’s been all about AI, with Microsoft chasing the tail of Nvidia, looking to capture the first adoption benefits. Microsoft has invested significantly, from its big stake in Chat-GPT pioneer Open AI to AI chips and a copilot AI subscription service.
Its results this week will give a clearer picture of both the AI spending wave and the transition to the cloud, with Azure Cloud usually a focal point from Microsoft’s results. The consensus is for earnings to rise by 20%, whilst revenue is seen climbing by 16%, the highest growth for two years. The good news for investors is that Microsoft knows how to deliver on earnings; missing earnings expectations just once in the last seven years, demonstrating why it’s now the world’s most valuable company.
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For more on Microsoft taking the top spot, listen to the latest episode of Market Bites, here:
2. Netflix Q4 Earnings
It’s been a rollercoaster few years for Netflix; struggling to maintain growth after its pandemic surge, losing its place amongst the world’s top stocks, FAANG’s replacement by the magnificent seven – and finally sparking a comeback in the last year with shares up more than 50%.
This resurgence is partly thanks to its new advertising plan and crackdown on password sharing. Netflix (NFLX) has also stepped up its games service, adding the world-renowned Grand Theft Auto, which should provide a boost in the quarter. The consensus is another big quarter from Netflix, with net subscriber additions at nine million and revenue projected to see the fastest growth in three years at $8.7 billion.
The focus for the quarter is likely to be on the outlook for the full year 2024, with consumer spending set to slow, and investors wanting to see strong profit growth with subscribers now at record levels.
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3. ResMed FQ2 Earnings
It was a pretty torrid year for ResMed (RMD) on the ASX. The company, perhaps best known for its CPAP masks, saw shares drop 18% due to headwinds from the internationally trending Ozempic drug, which some investors felt would dampen ResMed’s sales due to the connection between obesity and sleep apnea.
On top of this, the business has also suffered product recalls, but the main headwind has been margins, which look set to fall again this week. Gross margins are expected at 56%, down from a year ago.
The good news is that the consensus is for net income to rise by 9% to USD$245 million and revenue growth in double digits thanks to strength across masks and software. Its valuation also remains attractive at 23 times forward earnings, much lower than its historical average, pricing in recent challenges. A good result would give shares the next leg up after a solid three months, but a miss on estimates could put shares under pressure, given its recent strong performance.
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*All data accurate as of 22/01//2023. Data Source: Bloomberg and eToro
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