ASX 200 (XJO) to slide – share market volatility is back

The S&P/ASX 200 (ASX: XJO) is expected to sink when the market opens this morning. Here’s what you need to know.

Myer makes a deal with the devil

The ASX 200 finished another 0.8% higher yesterday, with everything but the IT, materials and utilities sectors adding to the rally. As reporting season comes to an end, dividend payments are driving daily movements with BHP Group Ltd (ASX: BHP) falling 2.3% as it trades ex-dividend and cash is paid out to shareholders.

Embattled department store operator Myer Holdings Ltd (ASX: MYR), which has been hit heavily during the COVID-19 shutdowns, rallied 17% after inking a deal with Amazon Inc. (NASDAQ: AMZN). The deal means customers of Amazon will be able to pick up their purchases from one of 21 Myer stores around Australia. This is clearly a bold call and a deal with the devil as the company seeks to stay relevant.

Whilst the New Zealand market isn’t high on our priority list, I was interested in SKYCITY Entertainment Group Limited (ASX: SKC) announcing it does not expect international travel to recommence at all in the 2021 financial year.

Robinhood and CBA under pressure

Bloomberg reported this week that the incredibly popular Robinhood trading app in the US, which offers commission-free trading, was being investigated for selling their member orders onto high-frequency traders.

Many experts have been blaming Robinhood for the exuberance in market valuations at in recent times, a trend also reflected in this week’s trading in ASX-listed buy now, pay later shares. Latest reports suggest that Zip Co Ltd (ASX: Z1P) was the most traded stock on the entire CommSec Retail platform in July, well ahead of BHP and the Commonwealth Bank of Australia Ltd (ASX: CBA).

Interestingly, some 26% of all Zip shares traded was from CommSec, which is the home of DIY investors in Australia. Staying with CBA, lawyers have commenced a class action against the Count Financial Planning unit sold last year, on which the Board provided a $300 million indemnity.

Volatility returns, tech valuations in focus

US markets suffered their worst loss in over three months, with the S&P 500 falling nearly 4% and most selling pressure hitting the Nasdaq, down 5% in a single session.

Just 54 of the S&P 500 constituents were higher with NVIDIA (NASDAQ: NVDA), down 9%, Tesla Inc. (NASDAQ: TSLA) and Apple Inc.  (NASDAQ: AAPL), both down 8%, the hardest hit in a sign investors are questioning the sustainability of tech valuations following a near 60% rally since the March lows. Interestingly, cruise liners and retailers were among the winners, suggesting a rotation back to value may be under way.

The selloff came following a weakening in PMI data and signs of a weaker than expected jobs report tomorrow; traders clearly choosing to be risk off before the weekend. Governments around the world continue to push for greater fiscal stimulus, with the US impasse likely holding the market back, as the French announced a new €100 billion domestic recovery package.

This article was written by Drew Meredith, Financial Adviser and Director of Wattle Partners. To get in contact with Drew, click here to visit the Wattle Partners website.

Disclosure: At the time of publishing, Drew owns shares of Zip Co.

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Disclosure: At the time of publishing, Drew owns shares of Zip Co.

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