ASX News LIVE | XJO At 10-Month High, Sentiment Hits Extreme Greed, KMD Crashes

Excerpt from Callum Newman’s latest piece.

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Here’s the good news: I believe a bull market is clearly beginning. History says this could run for a long time.

Midyear, I could hardly get anyone interested in the small-cap space.

I grew frustrated. I said to hell with everybody else.

Now look at the chart of the ASX since the market bottomed in October….

Source: Optuma [Click to open in a new window]

Hello! This is a huge move.

The world isn’t ending. The American economy is fine. Most people can still pay their mortgage — and have a job.

All this has been in play for a while now. Finally, investors have thrown fear off their backs.

The bear market is over. There is going to be abundant opportunities for years. I’m not saying it’s without risk. I can’t promise you that.

So a warning: I wouldn’t be surprised to see a move to the downside soon. It’s been a roaring move up.

Shares don’t go up in a straight line. But look through any volatility and play the long game. Think of 2025 and 2026.

Now is the time to think like a hunter, stalking your prey for the big potential killing to come.

Small Caps: A Smashing 2024 Coming

Lithium producer Pilbara Minerals remains the most shorted stock on the ASX with a heavy 20% short interest.

Graphite producer Syrah Resources is second, with 14.5% short interest.

Pilbara’s Aussie lithium peer Core Lithium rounds out the top three, with 11.9% short interest.

Interestingly, two uranium stocks have jumped into the top ten — Deep Yellow and Peninsula Energy.

$PLS remains the most shorted stock on the ASX.

Followed by $SYR, $CXO, $GMD, $SYA, $IEL, $FLT, $DYL, $PEN, and $WBT pic.twitter.com/eCd9IkkNlY

— Fat Tail Daily (@FatTailDaily) December 20, 2023

Beaten up lithium stocks are catching a bid today.

• Sayona Mining is up 12%
• Core Lithium is up 10%
• Ioneer is up 9%
• Delta Lithium is up 6.5%
• Liontown Resources is up 3%

But most mentioned are deep in the red this year.

Sayona is down 63%.

Core Lithium is down 65%.

Ioneer is down 63%.

Only Delta Lithium and Liontown Resources are in the black, up 11% and 25% respectively.

Although, even then, Delta is down 50% since July and Liontown is down 45% since June.

Property and self-storage investment firm Abacus Group today gave a brief update on the value of its commercial property portfolio.

Abacus said 37% of its investment properties have been externally valued as of December.

The preliminary draft valuations, which include ABG’s own internal estimates, fell 6.5% on the prior book values last year.

Huge delivery firm FedEx is down ~10% after hours in the US after cutting its full-year revenue forecast, with quarterly profit falling more than expected.

Announcing its latest quarterly results, FedEx said:

‘We expect revenue will continue to be pressured by volatile macroeconomic conditions negatively affecting customer demand for our services across our transportation companies.’

FedEX management said US market conditions ‘remain soft’, with Q2 demand lower than the firm anticipated.

Here’s something for Team Soft Landing.

Bank of America’s CEO said consumers with modest pre-pandemic savings have more in their bank accounts now than before.

BofA CEO: "the cohort of consumers that had between 2 and $5k in their account prepandemic, average of about $3,200/3,400, they're now still sitting with about 13k in their account…it has come down from a peak of $13.4k to about $12.8k but still much higher than it was before." pic.twitter.com/QL1rTAugyV

— talmon joseph smith (@talmonsmith) December 19, 2023

Further context here:

based on interest in details i'm following up with bofA team on details once im done with PTO but one possibility is that Brian is not wrong & just referencing checkable deposits which also includes MMF and savings not just checking accounts

here's your "no recession" in a chart pic.twitter.com/JEIm06CTZh

— talmon joseph smith (@talmonsmith) December 19, 2023

Digital property settlement platform PEXA Group [ASX:PXA] is down ~10% in midday trade.

PEXA admitted a ‘range of uncertainties continue to impact the markets in which PEXA operates in Australia and the UK through the end of November and into December 2023’.

For instance, overall transaction volume growth on its digital exchange has been ‘modest during 2Q24’.

And its international segment has not recovered from a ‘technology incident in April’. As a result, PEXA expects the 1H24 revenue from the international side of the business to be 10-14% lower than 2H23.

Its Digital Growth segment is also subdued. PEXA forecasts Digital Growth 1H24 sales to be 5-10% lower than 2H23.

KMD Brands [ASX:KMD], owner of outdoor clothing retailer Kathmandu, is down 10% in early trade.

KMD reported a trading update for the first four months of FY24 (ending 30th November 2023), a period that included Black Friday sales.

KMD said group sales were 12.5% below last year, reflecting ‘ongoing weakness in consumer sentiment’. The firm also said it’s ‘navigating short-term weakness in wholesale channels as retailers reduce inventory in uncertain trading conditions’.

Kathmandu’s total sales for FY24 YTD are down 21.6%. KMD qualified this fall by noting Kathmandu was cycling above-trend growth of 71.7% last year.

More people than usual stocked up on Northface jackets last year and are now happily satiated, it seems.

FY23 was a record year for KMD’s Rip Curl and Oboz but both brands saw declining sales in FY24 YTD, down 5.7% and 18.2% respectively.

KMD expects group underlying EBITDA for FY24 YTD to be $16 million below last year.

Yesterday, the Reserve Bank released its December monetary policy meeting minutes.

Here is the relevant bit about the Board’s deliberations for raising the cash rate or holding it steady:

‘The case to raise the cash rate target by a further 25 basis points was centred on the observations that inflation was expected to remain above target for a prolonged period and that there were risks this period could be extended. Members noted that inflation was increasingly being driven by domestic demand. They also observed that underlying inflation was higher in Australia than in several other countries. Furthermore, domestic demand was judged still to be running above the level consistent with the inflation target and growth could be supported in the year ahead by a recovery in real household disposable income as inflation declined. Members noted that the staff’s most recent forecasts, which were predicated on a lift in productivity growth, would see inflation return to the top of the target band by the end of 2025, rather than the midpoint of the band.

‘The case to hold the cash rate target constant reflected the view that the data over the prior month did not warrant a material revision to the outlook and that there is the possibility of a larger rise in the unemployment rate than anticipated. Members observed that monetary policy was working to bring aggregate demand and supply into closer alignment. They noted that the risk that it takes longer than expected to return inflation to target was balanced by the risk that aggregate demand slows more quickly than anticipated. Members acknowledged that consumption growth had been quite weak, as many households are experiencing a painful squeeze on their finances, with inflation and higher interest rates weighing on real disposable incomes. Members also noted that the pace of disinflation in some other countries over recent months had accelerated. If emulated in Australia, this would be helpful in bringing inflation back to target.’

What stood out to me is the RBA’s assessment of risks. Often, the risks run in opposite directions.

There is both the risk inflation remains above target for longer than forecast and the risk of a larger rise in unemployment than expected.

There is the risk aggregate demand props up inflation longer than expected and there is the risk aggregate demand ‘slows more quickly than anticipated’.

No wonder the Reserve Bank keeps emphasizing ‘there is sufficient value in waiting for further data to assess how the balance of risks was evolving’.

Our editorial director doesn’t think the renewed optimism of recent weeks makes sense.

He singled out Federal Express as an example.

I wish I could embed a poll here to canvass readers views. Is this an indiscriminate and dumb rally?

Federal Express ($FDX) rallied 25% from its Oct low. It trades on 16.5x FY24 expected earnings, 2.6x book, and forecast ROE of 16.8%. It just missed rev and earnings for 2nd qtr, and warned that full yr rev would decline. This rally is indiscriminate and dumb

— Greg Canavan (@gcanavan2) December 19, 2023

Not long ago, less than two months, the market was dejected.

CNN’s Fear & Greed Index was at extreme fear levels.

Yet how quickly things change.

Since a low in late October, market sentiment has steadily lifted.

Now we’re all the way in extreme greed.

Last time the Index was this high was August.