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A new month got off to a dismal start as the share market succumbed to weak leads, falling US futures and the dismantling of end-of-quarter window dressing.
The S&P/ASX 200 fell 147 points or 2 per cent to its lowest close since early June. The decline sealed a fourth straight losing week, the longest run in a year.
Gains in gold miners and travel stocks were comprehensively outweighed by declines across the wider market. All 11 sectors declined.
What moved the market
Any hopes yesterday’s 136-point rally, the strongest of the year, represented a change in the downtrend since mid-August were quickly dashed. The market plunged 174 points before lunch and only managed a modest recovery in afternoon trade.
Today’s collapse gave further fuel to suspicions yesterday’s inexplicably strong rally was little more than institutional investors daubing lipstick on a pig of a quarter. The rally flipped a losing quarter into a narrow win – an important detail for portfolio managers whose bonuses depend on such outcomes.
The market was largely unmoved by political drama in New South Wales. Premier Gladys Berejiklian resigned today after the corruption watchdog announced an investigation into her role in the awarding of grants to community organisations between 2012 and 2018.
Investors were more concerned about developments across the Pacific, where an anticipated vote on the White House’s infrastructure package failed to take place. S&P 500 futures sagged 20 points or almost 0.5 per cent, suggesting further pain tonight following last night’s losses. The US benchmark fell 1.19 per cent overnight.
Political deadlock has risen near the top of the list of concerns troubling US investors, with spending bills and the looming debt limit bogged down in Congress.
“Concerns loom that if the Congress will not raise the US debt limit, it could invite an economic catastrophe, with Treasury expected to run out of cash this month,” Kalkine Group CEO Kunal Sawhney said.
“While Congress has recently passed a temporary funding bill to prevent government shutdown, it is yet to raise the debt ceiling. There are growing fears that any failure to raise the debt ceiling before mid-October might result in economic damage, job losses, and a stock market slump.”
The ASX 200 peaked on August 13 and has since retreated roughly 5.5 per cent. However, context is important: the index surged 73 per cent from its pandemic low in March 2020 to its August top. Even at today’s level, investors are still sitting on a gain of 64 per cent.
The market has come off its high during a seasonally weak time of year when valuations are impacted by the payout of billions of dollar in dividends. This year included record payments from some of the major miners. Wall Street, too, struggled last month. The S&P 500 dropped 4.8 per cent, its worst monthly result since March 2020. The Dow shed 4.3 per cent and the Nasdaq 5.3 per cent.
Winners’ circle
Travel and tourism stocks rallied after the Prime Minister announced restrictions on international travel will be lifted ahead of schedule next month. Vaccinated Australians will face no restrictions when entering or leaving the country. Flight Centre climbed 1.82 per cent, Webjet 2.05 per cent and Qantas 0.71 per cent.
Gold stocks were another pocket of strength, chasing a 2 per cent rally in a US gold mining benchmark overnight. Northern Star climbed 2.47 per cent, Silver Lake Resources 3.73 per cent, Gold Road Resources 3.35 per cent and Newcrest 0.8 per cent.
The domestic gold sub-sector hit a pandemic low on Wednesday, but has since risen for three days. Overnight, gold for December delivery rallied US$34.10 or 2 per cent to US$1,757 an ounce.
Evolution Mining rose 2.29 per cent after the NSW government greenlit an extension to the company’s Cowal mine near West Wyalong. The underground extension will extend the mine’s life to 2040 and create 160 new jobs during construction and 230 long-term jobs once in operation.
The best of the rest were Whitehaven Coal +4.02 per cent, AMP +3.54 per cent and Orica +2.25 per cent.
Cimic racked up another contract win. The construction company’s UGL was awarded a contract worth $297 over seven years to design and manufacture diesel electric trains for Pacific National. Shares in the company firmed 0.36 per cent.
Doghouse
The financial sector spearheaded the retreat as gains this week from an improvement in long-term interest rates evaporated. Commonwealth Bank skidded 4.07 per cent, ANZ 2.52 per cent, NAB 2.01 per cent and Westpac 2.27 per cent. Macquarie Group shed 2.91 per cent.
The mining majors fared little better despite iron ore’s sixth rise in seven sessions. Rio Tinto slid 2.89 per cent, Fortescue Metals 2.61 per cent and BHP 2.02 per cent.
The sinking tide lowered nearly all boats. The index’s biggest losers came from all corners of the market: UK banking group Virgin Money fell 7.43 per cent, miner Mineral Resources 6.85 per cent, fast-food giant Domino’s Pizza 6.26 per cent, superannuation manager HUB24 6.23 per cent and plumbing supplies specialist Reece 5.33 per cent.
Pro Medicus eased 0.95 per cent during a tough session for healthcare companies despite a US subsidiary securing a seven-year $40 million contract with Novant Health. The deal is the health imaging company’s seventh in North America in a year and a half.
Healthcare heavyweight CSL fell 1.54 per cent, Ramsay 1.85 per cent and Sonic 2.04 per cent.
Other markets
Asian markets retreated amidst reports China’s troubled Evergrande property group missed another debt repayment. The Asia Dow slid 1.38 per cent. Japan’s Nikkei gave up 2.17 per cent. Markets in Hong Kong and mainland China were closed for holidays.
Gold trimmed an overnight rally, easing US$5.10 or 0.3 per cent to US$1,751.90 an ounce. Brent crude dropped seven US cents or 0.1 per cent to US$78.24 a barrel.
The dollar faded 0.29 per cent to 72.09 US cents.
