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1) So much for the start of the next bull market…
Overnight, US stocks posted their worst day since June as investors doubted (again) whether the Federal Reserve will temper its monetary policy tightening.
According to Bloomberg, hedge funds are positioned to profit should Federal Reserve Chair Jerome Powel "effectively rule out a dovish pivot" at the central bank's Jackson Hole symposium later this week.
Stocks had rallied from their June lows as 10-year US bond yields fell from around 3.5% to 2.5% as markets hoped for an easing in the pace of interest rate rises.
Source: Trading Economics
But all that has come to a screeching end as bond yields have reversed their fall, now back up to 3%.
Interest rate expectations will continue to drive the direction of stock markets in the short-term, as they should.
Longer-term, for stock pickers, underlying earnings growth will drive the share prices of individual companies, as they should.
2) The S&P/ASX 200 Index (ASX: XJO) has followed Wall Street's lead lower, although falls have been modest as large-cap stocks have held up reasonably well on the back of higher commodity prices.
The BHP Group Ltd (ASX: BHP) share price and the Fortescue Metals Group Limited (ASX: FMG) share price both rose on the back of a gain in the iron ore price. Both stocks trade on very attractive fully franked dividend yields.
The Pilbara Minerals Ltd (ASX: PLS) share price jumped 4% higher after the leading ASX-listed lithium company reported a massive 577% increase in sales revenue to $1.2 billion and a maiden full year profit of $562 million.
Pilbara said it was "buoyed by exceptionally strong global demand for lithium raw materials and positive pricing conditions for spodumene concentrate, particularly in the second half of the year."
The company is one of the poster children for the rise in demand in electric vehicles, and these are a stunning set of results. But high demand inevitably incentivises increased supply, something Credit Suisse analyst Matthew Hope recently said could lead to a looming period of oversupply.
Successful investing in commodity stocks requires a good degree of market timing combined with a dose of luck.
3) Amongst other ASX 200 companies reporting today, going the other way is the Endeavour Group Ltd (ASX: EDV) share price, down 10% to $7.45.
Spun out of Woolworths Group Ltd (ASX: WOW), Endeavour is the home to a portfolio of pubs plus liquor chains Dan Murphys and BWS.
According to the AFR, CEO Steve Donohue told analysts he expects the market will return to normal after two bumper years. Supply chain costs dinged profits in the second half, "a factor that some on the investor call say is driving the plunge in the company's shares today."
The falling Endeavour Group share price might also have something to do with it trading on an earnings multiple of 27 times and a dividend yield of just 2.7%. The risks look to be to the downside.
4) Speaking of downside, the Kogan.com Ltd (ASX: KGN) share price is on the nose after reporting a small loss as revenue slipped by 8% and gross profit declined by 9%.
CEO Ruslan Kogan admitted his bet that the pandemic acceleration of sales was not going to stop was wrong. This led to Kogan holding excess inventory and an associated increase in variable costs and marketing costs to sell through the inventory.
Kogan.com scrapped its final dividend as it "works through a period of consolidation to return to growth in profits."
Having reset the business to this more normal trading environment, Kogan is banking on the continued growth of online shopping and its huge range of products delivered to customers' doors at great prices.
With a market capitalisation of $380 million, and net cash of $31 million, Kogan shares look cheap, trading at around 0.5 times sales.
July trading saw adjusted EBITDA of $1.5 million, giving shareholders hope the turnaround is taking shape. If only we weren't staring at an economic slowdown as interest rate rises start to kick in to discretionary spending…
Still, Kogan shares could be worth a look, especially if the share price falls back down to around the $3 mark.
5) Despite the Nasdaq slumping 2.55% overnight, and Zoom Video Communications cutting its annual revenue forecast, saying it's losing sales from consumers and small business faster than anticipated, founding member of the now defunct WAAAX stocks – Altium Limited (ASX: ALU) – is proving there's life yet in tech stocks, with Altium shares soaring almost 20% after reporting results that smashed expectations.
While Altium shareholders are popping the champagne corks today, like many other growth stocks, the Altium share price has been smashed so far this year, down over 20%. Still, when you compare it to fellow ASX 200 tech stocks like Block Inc (ASX: SQ2) and Xero Limited (ASX: XRO) – down 39% and 38% respectively year to date – it's not as bad as it could have been.
Unfortunately, quality doesn't come cheap. Altium shares trade on 84 times trailing earnings.
