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1) Overnight, the S&P 500 Index (SP: .INX) fell for the sixth session in a row, the longest losing streak since February 2020. It has fallen 7.8% so far in September, living up to its "worst month of the year" reputation.
There's nothing more that markets hate than uncertainty, and with interest rates across the globe rising at some of the fastest rates in decades in order to tame inflation, we've got it in spades.
"Right now there's a lot of variables up in the air and we're not going back and forth between optimism and pessimism — there's a legitimate repricing and re-evaluation going on at the moment," said Shawn Cruz, head trading strategist at TD Ameritrade, on Bloomberg.
2) Here in Australia, the S&P/ASX 200 Index (ASX: XJO) is finally showing signs of cracking, having lost 6.7% so far in September, bringing its year to date losses to a chunky 12.7%.
Big losers so far this year include popular tech stocks Megaport Ltd (ASX: MP1), Block Inc (ASX: SQ2) and Xero Limited (ASX: XRO), down 57%, 52% and 44% respectively.
Although the ASX 200 is having a tough year, it has got nothing on the falls seen in US markets, with the S&P 500 down 23.5% so far in 2022 and the NASDAQ-100 Index (NASDAQ: NDX) off 30.8% in the same period.
Huge gains in coal stocks – with Whitehaven Coal (ASX: WHC) and New Hope Corporation Limited (ASX: NHC) up 224% and 157% respectively this year – have saved the day for the ASX 200, with hot lithium stocks Core Lithium Ltd (ASX: CXO) and Sayona Mining Ltd (ASX: SYA) not far behind, up 102% and 77% respectively so far in 2022.
3) Speaking of coal stocks, writing on Livewire, Steve Johnson of Forager Funds says, using current spot prices, some coal companies "are generating almost their whole market cap every year in cash flow."
Coal companies mentioned in this category include Yancoal Australia Ltd (ASX: YAL) and Coronado Global Resources Inc (ASX: CRN).
The market is of course assuming coal prices won't stay this high forever, but in the meantime, investors can pocket some very juicy dividends. As ever, there are no free lunches in investing, and the old saying "if it looks too good to be true it usually is" rings true. Whilst the trailing dividends are very attractive, given the coal price is likely to fall over time, the risk of capital loss is elevated.
4) Whilst many investors are in a world of hurt in this tough year, ASX lithium stocks are partying like supply for the battery-making material will never catch up to demand as the transition to electric vehicles rolls inexorably onwards.
Broker JP Morgan recently said it expected a lithium supply shortfall to last until 2025, whilst Piedmont Lithium (ASX: PLL) CEO Keith Phillips effectively said he expects the shortfall to last until 2035.
That said, not everyone shares in the enthusiasm for lithium stocks.
Writing in its August monthly update, the Spheria Australian Microcap Fund said it feels the risk-reward equation for Sayona Mining investors is unfavorable, given the company's near $3 billion (at the time) market capitalisation, considering first spodumene production is expected in 2023 and first refined product is planned by 2025.
The fund also noted fellow lithium stock Liontown Resources Limited (ASX: LTR) – with a market capitalisation (at the time) of close to $4 billion – has no revenue with first production expected in late FY24.
"We feel the lithium price is trading well ahead of fundamentals and there are risks with investing in this kind of project given the timeline to production and large valuation already ascribed by the market," said the fund.
The Liontown Resources share price has actually fallen 9% so far in 2022.
