Evening Wrap: ASX 200 higher on gold and lithium gains, tech stocks give back early strength

 The S&P/ASX 200 closed 38 points higher, up 0.51%. 

The local sharemarket finishes the week 2% higher, lithium stocks gain amid expectations of a bounce in spot prices, tech stocks struggle to hold onto morning gains and some food for thought about what the rest of April might look like for ASX investors.

Let's dive in.

ASX 200 Session Chart

ASX 200 shrugs off a choppy open and rallies intraday (Source: Market Index)

Markets

The ASX 200 has been green 11 of the last 13 sessions, up 5.8% in a V-shaped fashion.

• Materials led thanks to gains from lithium and gold miners

• Chinese lithium names like Ganfeng and Tianqi surged more than 6% as analysts expect prices to rebound after a sharp fall and further industry consolidation as small players exit

• Financials were higher, with the Index closing the week out at a 5-week high

• Tech was a little choppy, with the Index fading from session highs of 0.95%

Economy

No major economic announcements. 

Latest news

Market Insights

Friday is going to be a little freestyle today, which will give you a little bit of a tour as to how my brain works.

April seasonality: Where are we now

We're currently on day 104 of the year. The market has tracked the seasonally strong month of April to an almost tee.

ASX 200 seasonality for June 1992 to March 2023 (Source: Market Index)

Sticking to the theme of seasonality, the market tends to top out around day 124 or May 3-4 and then chops a little lower until day 180 or the last day of June.

VIX and sentiment

The ASX 200 VIX has fallen to 12.85 from March 20 highs of 16. Although its traded around 11-12 for most of January and February this year.

ASX 200 VIX (Source: Market Index)

The movement for the S&P 500 VIX is a little more pronounced, closing at 17.8 last night or the lowest level in 15 months.

S&P 500 VIX (Source: TradingView)

Why this matters: If the VIX is high, then the market is typically all over the place. The ASX 200 VIX was above 20 in June and October last year, which was characterised by a lot of downward and choppy trade. You get those tricky days where the market sells off for a few days, bounces and falls again. Or even worse, those 2-3 day rallies into a harsh selloff. When the VIX is low, things tend to move a little more orderly and constructively.

Sentiment and mood is another thing I wanted to take note of. In this case, I'm going to reference CNN Fear & Greed Index.

It's interesting to observe that periods of 'Extreme Greed' tend to coincide with recent market tops. The two most recent peaks were 1 December 2022 and 1 February, which is broadly in-line with peaks for both the S&P 500 and ASX 200.

Fear & Greed Index (Source: CNN)

The Index is currently in 'Greed' territory or 66 (on a scale of 0 to 100). So sentiment is getting quite frothy. The question is, should it tip into 'Extreme Fear', does that mark yet another top for markets?

US earnings: Low bar into high bar

US earnings is about to kick off tonight. Expectations are running pretty low, with analysts expecting S&P 500 companies to report a 6.8% year-on-year decline in first quarter earnings, the biggest decline since the second quarter of 2020.

This is somewhat a positive for markets. If expectations are running extremely low, then you get scenarios where companies post 'better-than-expected' or 'better-than-feared' results.

The problem is that analysts are quite optimistic for the second quarter and beyond. The first quarter is expected to be the trough for earnings, Q2 is expected to bounce 7.4% QoQ and the following 3 quarters are all expected to be in record territory.

Source: FactSet

Putting it all together

Sentiment has a little bit more room to move before things get full blown frothy. This also coincides with the calmness of the VIX, low-bar for first quarter earnings and the continued seasonal strength we see in the second half of April.

But what does May look like - when seasonality begins to turn and earnings are expected to improve?

Interesting news and movers

Trading higher

• +23.0% Recce Pharma (RCE)

• +19.2% Lindian Resources (LIN)

• +16.3% 4D Medical (4DX)

• +10.2% Alpha HPA (A4N)

• +9.0% PointsBet (PBH)

• Gold sector move: Northern Star (+4.4%), Ramelius (+4.1%) Evolution Mining (+3.1%)

• Lithium sector move: Leo Lithium (+6.9%), Allkem (+5.4%), Pilbara Minerals (+5.0%)

Trading lower

• -5.4% Karoon Energy (KAR) – Extends production suspension, downgrades guidance

Broker updates

A few Macquarie notes:

Beach Energy (BPT): Neutral with $1.48 target price

• “BPT’s 3Q result was disappointing, with unplanned outages in the Cooper Basin again highlighting the risks in BPT’s late-life portfolio.”

• “FY24 production outlook weakens following confirmation two of four Otway well connections have been deferred for an unquantified period.”

• “Neutral. While another soft quarter underscores the difficulties in BPT’s portfolio, Perth Basin upside prevents us becoming more negative.” 

AGL Energy (AGL): Outperform with $8.31 target price

• “Summer was mild with demand lower. AGL’s coal fleet respond with 10- 14% lower generation.” 

• “Pricing outlook is robust with the outlook tested with the Liddell closure this month and Eraring in FY26.” 

• “FY26. Fears of a tighter market is lifting average prices. AGL coal fleet, particularly in NSW is building flexibility to better shape itself to a changing demand profile reducing exposure to the off-peak periods.” 

Corporate Travel (CTD): Neutral with $21.32 target price

• “The UK Home Office contract is material if the ~$3b TTV anticipated value is generated over the two-year period.”

• “However, currently there is little visibility into the revenue and earnings profile nor any certainty of extension beyond the initial period.”

Leo Lithium (LLL): Outperform with $1.50 target price

• “The impressive drill intersections present upside to Goulamina’s resource base, in our view.”

• “At the most recent update the company noted that Project development is tracking to plan with construction and engineering underway.” 

• “Completion of the Stage 1 development at Goulamina presents the most material catalyst for LLL.” 

NextDC (NXT): Outperform with $15.30 target price

• “Contract wins announced from hyperscale customer. Revenue benefit skewed toward FY28/FY29.”

• “Medium-term demand ramp-up profile moderated in our forecasts, resulting in 1–5% EBITDA declines. TP +38% to $15.30 reflecting inclusion of a TGR.” 

Lottery Corp (TLC): Neutral with $5.16 target price

• “Australian lotteries have seen low jackpot activity in FY23 year-to-date. We now forecast flat lottery volumes in FY23 with 39% digital penetration.” 

• “Whilst we see FY23 consensus downgrades, FY24 should benefit from normalised jackpot activity, digital penetration growth & higher commissions.” 

• “With near-term downgrades and a fair valuation on 17x FY24 EV/EBITDA, in line with the avg trading multiple since listing, we downgrade to Neutral.” 

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