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Five at Five AU: ASX jumps 1.04% as tech and coal stocks gain ground

Published 19/01/2024, 02:47 pm
Updated 19/01/2024, 03:30 pm
Five at Five AU: ASX jumps 1.04% as tech and coal stocks gain ground

The ASX200 has climbed 76.1 points or 1.04% to 7,422.60 as of 2:30pm today – almost the entire bourse is in the green, with 10 out of 11 sectors climbing and tech and coal stocks making particular gains.

The two standouts at opposite ends of the spectrum were Information Technology, up 2.77%, and Utilities, down 0.20% with the pleasure of being the only sector to falter today.

Whitehaven Coal (ASX:WHC) is leading the charge for the energy sector today, up 4.35% intraday, and joined by mining giants Rio Tinto (ASX:RIO) (+0.66%), BHP (ASX:BHP) (+0.51%) and Fortescue (ASX:FMG) Metals (+1.81%).

Tech similarly made gains, with Xero Ltd (+3.67%) and Weebit Nano (+3.53%) making particularly good showings.

The index has lost 1.04% for the last five days but is virtually unchanged over the last 52 weeks.

Commodities were a bit more subdued during the day – palladium and platinum reversed some recent losses, up 2.45% and 2.83% respectively, while oil continued on its recent generally upward trend, adding 1.61% to West Texas crude.

Zinc and aluminium were the notable losses today, shedding 2.04% and 1.12%.

What’s in store for the big 7 tech stocks of 2023?

XTB research director Kathleen Brooks joins us to discuss the big seven tech stocks of 2023, and how they might fair in the year to come.

“The Magnificent 7 tech stocks were the big story of 2023. Alphabet (NASDAQ:GOOGL), Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA), Nvidia, Meta and Microsoft (NASDAQ:MSFT) dominated financial markets and were integral to the direction of US and global stock markets,” Brooks wrote.

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“But will this be the case in 2024? Below we will take a look at what 2024 could have in store for mega tech, and how the Magnificent 7 could change in the coming months.

“Financial markets have been fairly directionless so far in January. Volatility has started to move higher as stocks and bonds retreated on the back of central banks pushing back on expectations for rate cuts. This has hurt the overall market.

“The S&P 500 was lower by 0.44% in the last week and has been down a touch since the start of the year. The S&P 500’s IT sector has fared better than the overall index, it is up 1.53% in the last week, and is 1.94% higher so far this year.

“The Magnificent 7 are an important part of the overall US index, but for indices like the FTSE 100, which has very little tech exposure, its performance has been even worse.

“The FTSE 100 is lower by 1.5% in the past week and is down by 3.59% YTD. Tech has had a good start to 2024 so far.”

Brooks points to several factors that will determine the success of these seven tech companies moving forward;

  • their ability to grow earnings in the year ahead;
  • the ability to leverage a disinflationary environment;
  • earnings performance; and,
  • a well-balanced price/earnings ratio - Microsoft, Apple and Tesla need to deliver stellar results to ensure their PE ratios are justified.

The AI question

“The AI theme was the hot topic of 2023, in 2024 this topic is still a major talking point; however, the focus is now on the monetisation of AI,” Brooks explained.

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“In the Magnificent 7 some are more exposed to AI than others. For example, Nvidia provides the chips needed to power the best AI models and Microsoft is a major stakeholder in OpenAI.

“Meta is also making a big push into AI, although its efforts are yet to bear meaningful fruit, Alphabet has made some inroads but is still lagging behind its rivals.

“Tesla has AI capabilities, but Elon Musk is facing a battle with the Tesla board to expand its efforts. Apple and Amazon have less focus on AI.

“Looking ahead, we believe that the biggest tech stocks with direct AI exposure could benefit the most from a continuation of the AI theme in 2024.

“The path of least resistance is for Microsoft and Nvidia to continue to dominate the AI space, and we think that this will pay off for these companies in the coming months.

“Nvidia has already had a stellar start to 2024. Its stock price is up by more than 13% so far this year, and by 4.5% in the last week, even though the broader market has been battered by a bout of volatility.

“This suggests that Nvidia is still in demand and has some defensive qualities that could help protect its stock price in periods of risk aversion. At the recent Computers and Electronics show in Las Vegas, Nvidia announced that its focus for 2024 was personal computing AI.

“This push into personal computing has cheered investors since it can be a big money spinner, just think of Microsoft and Apple in years gone by.

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“Microsoft hasn’t performed as well as Nvidia so far in 2024, however it is higher by more than 4% so far this year and is up by 3.4% in the last week.

“It also overtook Apple as the world’s most valuable company. We think it managed to overtake Apple due to its exposure to AI.

“The chart below shows the stock price performance of the Magnificent 7 over the last year. The chart has been normalised to show how these stocks move together.

“As you can see, Nvidia, the yellow line, is leading the pack.

“Microsoft, the purple line, is trailing Nvidia along with the rest of the Magnificent 7, however, its stock price has turned higher, while the other tech giants are lower or moving sideways.

“As we move through 2024, we could see differentiation within the stock performance of the Magnificent 7, with Nvidia and Microsoft leading the way.”

Chart: Magnificent 7, normalized to show how they move together:

Source: Bloomberg.

“While AI is a theme within the tech sector that could drive robust individual performance for certain members of the Magnificent 7, the fate of other tech stocks could depend on the economy,” Brooks continued.

“Some Magnificent 7 stocks like Apple have defensive properties, such as massive cash piles. This means that if there is an economic downturn Apple and other tech stocks with defensive qualities could outperform.

“However, if the economy does have a soft landing as the Fed starts cutting interest rates in March or soon after, then it could allow the other more cyclical sectors in the S&P 500 to play catch up.”

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