Market Slide, RBA Hikes | Genesis

7 September 2022

US markets (S&P 500 Index –0.4%) whipped between gains and losses but eventually closed lower in the first post-Labor Day session. The NASDAQ Index fell -0.7% marking its 7th daily decline in a row, on the back of ‘good’ economic news which translates badly for market sentiment at the moment.

US services sector data came in stronger than expected for the month of August, implying the US economy is still in a strong position despite recent interest rate hikes, giving the Fed more room to hike rates further. Adding to the pessimism in stocks is the surge in bond yields. The yield on the 2-year U.S. Treasury jumped to a fresh daily high of 3.515% on Tuesday, almost touching the highs that occurred in 2007.

The benchmark was led lower by Energy (-1.0%) and Communication Services (-1.3%) sectors, the latter reached a new 52-week low. Although some of the largest market movers were experienced outside these sectors, including Moderna (-6.1%), Church & Dwight (-4.7%), and 3M (-4.2%).

European markets (Stoxx 600 Index, +0.2%) closed higher on a volatile Tuesday, recovering from an intraday low of –0.4%. Energy shares (STOXX 600 Energy –2.5%) performed the worst, pulling back after outperforming the market a day earlier.

Genesis Energy (GNE:NZX)


Genesis shares have held flat for the year, after their slide late last year as investors worried that the record low-interest rate environment would be over. Despite rates heading upwards aggressively this year, Genesis has held its value better as risk adverse investors appreciate its dependable dividend in-light of economic uncertainty.

Genesis is fairly priced in our opinion at current levels as it offers an attractive dividend, while any levels below $2.60 would be considered oversold and the stock tends to bounce back from that level. On the flipside, above $3.25 can be viewed as an overbought level pushed by record low-interest rates (which pushes up asset prices higher, especially yield stocks) which was not permanent. 

We remain BUY rated on Genesis at its current valuation due to its attractive (and stable) dividend yield of 6.1%, making it more attractively priced than its gentailer peers which average a ~4.2% dividend yield.

Given the market is now aware and priced in aggressive rate hikes from central banks, we see limited downside risk for Genesis at current levels, and the stock is suited for investors after stable dividend.

Australia & New Zealand Market Movers

The Australian market (ASX 200 Index, -0.4%) fell to a six-week low after the Reserve Bank of Australia raised its cash rate by an expected 50-basis-points. Philip Lowe, Governor of the RBA will speak on Thursday, with investors looking for comments regarding peak inflation and Central Bank policy moving forward.

The best performing ASX sectors on Tuesday were technology and energy, rising by 0.7% and 0.5%, respectively, as the energy crisis in Europe continues to support robust energy prices. Major moves in these sectors were made by Whitehaven Coal (+3.7%), Allkem (+4.3%), and Paladin Energy (+7.8%).

The New Zealand market (NZX 50 Index, -0.2%) repeated yesterday’s mild decline with thin trading volume. 

Fisher and Paykel Healthcare had the greatest impact on the market, falling -2.3%. However, trading volume was concentrated on Infratil, which edged down -0.4% but accounted for one quarter of turnover.

What Markets will be Watching this Week

Monday
Australian PMI and retail sales data

Tuesday
Reserve Bank of Australia cash rate decision. 

Wednesday
Eurozone employment and second quarter GDP data. Australia’s second quarter GDP data.

Thursday
Bank of Canada interest rate decision

Friday
European Central Bank interest rate decision and China (consumer) CPI and (producer) PPI inflation data. 

US markets (S&P 500 Index –0.4%) whipped between gains and losses but eventually closed lower in the first post-Labour Day session. The NASDAQ Index fell -0.7% marking its 7th daily decline in a row, on the back of ‘good’ economic news which translates badly for market sentiment at the moment. US services sector data came in stronger than expected for the month of August, implying the US economy is still in a strong position despite recent interest rate hikes, giving the Fed more room to hike rates further. Adding to the pessimism in stocks is the surge in bond yields. The yield on the 2-year U.S. Treasury jumped to a fresh daily high of 3.515% on Tuesday, almost touching the highs that occurred in 2007.

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