ASX Set to Approach Record High as Market Optimism Continues
The Australian stock market is poised to extend its winning streak for a sixth consecutive day, with the ASX 200 index futures contract pointing up by 0.2%. This positive momentum brings the market closer to its all-time high. Meanwhile, international markets showed mixed performance, with the S&P 500 experiencing its first loss in six sessions, while the Dow Jones index rose by 0.16% and the Nasdaq tumbled by -0.36%.
Investors have shifted their focus from interest rate cuts in March to fully pricing in a Federal Reserve move in May, resulting in rising bond yields. However, the US core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure, declined to 2.9%, lower than the estimated 3%.
In terms of economic growth, the US GDP grew at an annualized rate of 3.3% in the final quarter of the year, surpassing economists’ expectations of 2%. However, market analysts believe that this robust growth is unlikely to alter expectations for interest rate cuts by the Federal Reserve in 2022 due to concerns about declining inflation despite the overall economic growth in the United States.
This week, investors will be closely monitoring the earnings reports of the Magnificent Seven tech giants. Analysts anticipate a nearly 40% year-on-year growth in earnings for these seven stocks, along with a 12% increase in revenues. These companies are expected to make up more than 100% of the total earnings growth of the entire S&P 500 index. In contrast, the remaining 493 stocks are projected to have incurred losses throughout last year.
The outperformance of the Magnificent Seven extends beyond earnings alone, with factors like sales growth and net margins also significantly surpassing those of the other 493 stocks. Sales growth for the Magnificent Seven is expected to reach 11% over the next two years, compared to a mere 3% for the S&P 493. Similarly, net margins are approximately 20% for the Magnificent Seven, compared to around 10% for the S&P 493.
Aside from earnings, several common themes will be closely watched in the tech giants’ reports. This includes assessing the health of the consumer and the broader economy, as well as evaluating the impact of artificial intelligence (AI) and the growth of augmented and virtual reality devices.
In other news, Australian companies are making significant strides in various sectors. Electro Optic Systems (ASX:EOS) has secured a contract worth approximately $15 million to supply Slinger Counter-Drone Systems to Diehl Defence in Germany. Resource Mining Corp (ASX:RMI) has been granted the highly prospective Köyhäjoki exploration permit in Finland, which covers the central part of the Kola Lithium Project. Likewise, Neurotech (ASX:NTI) has received approvals to conduct a Phase I/II clinical trial investigating the use of NTI164 in paediatric patients with Spastic Diplegia Cerebral Palsy. Finally, Infini Resources (ASX:I88) has identified a large radiometric anomaly at Portland Creek, which will be further investigated to determine the source of highly anomalous uranium results.
As the ASX edges closer to its record high, optimism continues to prevail in the market. However, investors remain cautious about inflation and the potential impact on interest rate decisions by the Federal Reserve. Nonetheless, the performance of the Magnificent Seven and the positive developments in various Australian companies suggest potential growth opportunities in both local and international markets.
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