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The Zip Co Ltd (ASX: ZIP) share price has taken a beating in 2022 so far, shedding 85%. And after posting a $1 billion loss to the market in August, the buy now, pay later (BNPL) share attracted the interest of motivated short sellers. Indeed, it made the list of the top ten most shorted ASX stocks on Monday.

Zip suffers from two key problems in a bear market. One is, it’s hemorrhaging money and, two, it seems increasingly likely we’re heading towards, or are already in, a recession.

Both factors put pressure on Zip’s fundamentals going forward. And now the company may be facing further headwinds with Australians seemingly moving away from BNPL payment schemes and back to traditional forms of credit in record numbers.

That’s the claim from MWE Consulting’s monthly Australian Payment Cards Report, published by Banking Day. Let’s have a look at the details.

What did the report say?

The report said Australian credit card and charge card spending increased by $4 billion in the month of August, making it the highest monthly card spend on record.

MWE Consulting industry analyst Mike Ebstein said:

The migration of card spend from credit and charge to debit has ceased. Balances increased by $277 million from July to $38.3 billion but balances accruing interest dipped by $16 million to $17.8 billion.

As a direct dig at BNPL shares like Zip, Ebstein believes that account numbers could have only just reached the bottom across the industry.

Ebstein said:

The long slide in account numbers may well have reached its nadir with a further small increase from July to August.

Internet traffic confirms the swing to credit cards

To make matters worse, a traffic analysis by web analytics company Similarweb shows that increasing numbers of Australians are visiting credit card pages on the websites of the big four banks. This also correlates with the rise in Australian credit card spending.

Similarweb’s enterprise sales manager Scott Rogers-Jones stated that visits to the credit card pages of the major banks are up 22% year over year (yoy) and that for every month, bar January, the pages have received at least a double-digit growth in visitors.

He speculated the return of international travel could be playing a part in the renewed interest in credit cards. Frequent flyer perks could be what’s pushing the needle back towards credit, with some of Australia’s top search queries coming up as ‘Qantas credit card’ and ‘frequent flyer credit cards’.

Rogers-Jones concluded his analysis with the following, which helps to illustrate why BNPL shares like Zip could be facing a new competitive threat in the marketplace in the form of travel reward points:

Overall, the RBA [Reserve Bank of Australian] data paired with Similarweb data shows a real increase in interest and activity when it comes to credit cards. In addition, credit cards have a competitive advantage over other lines of credit as there is the opportunity to earn frequent flyer points for every $ you spend.

Zip share price snapshot

Zip shares currently trade for 63.2 cents each. It’s a long drop from their all-time high of more than $12 a share in February last year.

The Zip share price is down more than 90% over the past 12 months. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is down around 8.5% over the same period.

The company’s market capitalisation is around $451 million.

The post Could this represent another nail in the Zip share price coffin? appeared first on The Motley Fool Australia.

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Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ZIPCOLTD FPO. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The $6.6 billion listed investment company (LIC) Argo Investments Limited (ASX: ARG) reckons IGO Ltd (ASX: IGO) and Liontown Resources Limited (ASX: LTR) are the best picks among ASX 200 lithium shares.

At Argo’s annual general meeting this week, managing director Jason Beddow said decarbonisation was an important future theme. Further, rising global electric vehicle (EV) manufacturing would drive demand.

IGO shares and Liontown shares represent Argo’s biggest holdings in the ASX lithium space.

Argo’s 2022 annual report reveals it opened a position in Liontown for the first time in 2022. Argo bought 7,575,758 Liontown shares. Over the year to date, the Liontown share price is up 14.3%.

IGO shares represent Argo’s biggest lithium holding with 3,680,970 shares. Argo increased its position in IGO by 20% in 2022, purchasing another 600,000 shares. The IGO share price is up 38% year to date.

Beddow said the price of lithium spodumene had skyrocketed over the past 12 months. That’s due to demand from car manufacturers seeking long-term supply contracts.

Why Argo has invested in IGO

Beddow explains:

IGO is one of the biggest lithium producers in Australia and provides high quality exposure to the rapidly growing battery materials market, with low-cost lithium and nickel operations.

The company has exposure to the Greenbushes Lithium mine in Western Australia via a 25% ownership stake. The mine has the largest installed capacity, the highest-grade reserve, the lowest cost structure, and a mine life of over 20 years.

IGO is generating very strong cashflows from existing operations and can fund future growth opportunities.

According to reporting by the Australian Financial Review (AFR), Beddow said after the meeting that demand for lithium among car manufacturers should exceed supply for at least the next five years.

He said global automakers and battery manufacturers were urgently seeking to lock in “limited supply at almost any price”.

This has pushed the price of lithium spodumene up by more than 500% in 12 months, he said.

Why Argo has invested in Lynas Rare Earths

Argo also likes Lynas Rare Earths Ltd (ASX: LYC) shares. Lynas produces the elements needed to create magnets for electric vehicles and wind turbines.

Lynas is one of the world’s largest rare earths miners outside China.

In the AGM investor presentation, Beddow demonstrated that demand for the rare earths neodymium and praseodymium (NdPr) would continue on an upward trajectory through to 2030.

In terms of EVs, China is forecast to increase its EV sales the most from here to 2030, according to the Argo presentation. Europe will be the second biggest growing market over time — well ahead of the United States.

Argo holds 6,779,221 Lynas shares and did not increase its holding in 2022.

Beddow explains:

Demand for rare earths is underpinned by growth in electric vehicles, wind turbines and the development of new technologies.

Lynas owns the Mt. Weld open pit mine in Western Australia, which is one of the highest grade and largest scale deposits in the world. It is the largest producer outside of China of high-value rare earth elements, including NdPr…

Lynas has started construction of an additional cracking & leaching plant in Kalgoorlie, with completion targeted in 2023, and is also in advanced studies for the construction of a US Rare Earths facility in Texas.

Argo also owns shares in the battery materials and technology company, Novonix Ltd (ASX: NVX). It owns 13,550,000 Novonix shares, having reduced its position in 2022 from 14,240,028 shares in 2021.

The post Why $6.5b Argo Investments is backing these ASX 200 lithium shares appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Lake Resources N.L. (ASX: LKE) share price has had a ripper few years amid the market’s growing appetite for lithium.

The company is focused on the development of Argentina’s Kachi Lithium Brine Project.

However, things weren’t always that way. When it first listed in 2001, the company was exploring projects in Sweden, Pakistan, and India for various minerals.

As of Tuesday’s close, the Lake Resources share price trades at $1.05.

So, if an investor bought into the company at its initial public offering (IPO), how much would they have gained from the stock over its 21-year listed life? Keep reading to find out.

How much were Lake Resources shares under the company’s IPO?

An investor who snapped up a parcel of Lake Resources shares at the company’s IPO would be laughing in 2022. However, for many years prior, their investment would likely have been a disappointing one.

Lake Resources issued 4.9 million shares under its oversubscribed 2001 IPO, raising $1.716 million while doing so. That suggests an offer price of 35 cents per share.

Interestingly, BHP Group Ltd (ASX: BHP) – at that point known as BHP Billiton – snapped up US$500,000 worth of the now-lithium favourite’s stock under its IPO. The pair were working together on certain tenements at Sweden’s Norrbotten Project at the time.

Today, a $1,000 investment in Lake Resources at the time of its IPO would be worth $3,000 – marking a 200% gain. That’s a pretty decent return.

However, at its 2015 record low, the Lake Resources share price was trading at less than a single cent. No doubt, such a tumble would have been disappointing for shareholders.  

Fortunately, Lake Resources snapped up a smaller lithium company shortly after its stock hit its all-time low. That saw it taking hold of the Kachi Project, and the rest is history.

The company is now an S&P/ASX 200 Index (ASX: XJO) lithium favourite and the Kachi Project is expected to produce at least 50,000 tonnes of battery-quality lithium annually.

The post Have Lake Resources shares really surged 200% since their ASX debut? appeared first on The Motley Fool Australia.

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Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Shares in Insurance Australia Group Ltd (ASX: IAG) are rangebound today, trading flat at $4.87 at the time of writing.

After a flat year on the chart, IAG now trades back in line with levels seen in October 2021. It’s trading up from 52-week lows of $4.14 on 17 June. See this price action on the chart below.

Cheap or expensive? IAG in the spotlight

Despite a relatively flat year in terms of price action, the IAG share price still trades on a price-to-earnings ratio (P/E) of 36.3 times.

That’s well ahead of peers in the GICS Financials Industry, who trade on a median 19.7 times. Looking ahead, it’s priced at a forward P/E of 14.4 times per Refinitiv Eikon, in line with the industry.

The company has a forecasted price-to-book ratio (P/B) of 1.77 times, in line with the industry.

There’s also a respective 5.35% projected dividend yield for the next 12 months that must be factored into the equation.

With these points in mind, some argue that IAG shares are ‘cheap’ on a relative basis, and could present a buying opportunity.

General insurers are looking increasingly attractive to Justin Braitling of Watermark Fund Management, Livewire reports.

“Insurance margins have been under pressure with low interest rates (now reversing) and the insurance cycle has turned following a period of elevated claims,” Braitling said.

“The shares are cheap, and we are moving into a hardening cycle for premiums-claims inflation on the other hand should start to ease,” Braitling added.

Meanwhile, those at Wilsons are attracted to IAG’s forward-looking yields, placing it in a list of 21 other names it tips to deliver yields above 3% in 2023.

The question then turns to whether the market believes IAG shares are cheap or not. And that remains to be answered at this stage.

IAG is up 14% this year to date.

The post Why IAG shares are a cheap buy right now: expert appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Global Lithium Resources Ltd (ASX: GL1) share price has returned from its trading halt and dropped deep into the red.

In late morning trade, the lithium developer’s shares are down 9% to $2.37.

Why is the Global Lithium share price sinking?

The weakness in the Global Lithium share price today has been driven by the announcement of an institutional placement.

According to the release, the company has received firm commitments for a $100.2 million fully underwritten institutional placement. These funds will be raised at $2.25 per new share, which represents a 13.8% discount to the Global Lithium share price prior to its halt.

Management notes that the placement bookbuild was strongly supported by a significant number of new and existing high-quality domestic and offshore institutions.

In addition, the company is raising a further $11.2 million via a strategic placement of ~4.95 million new shares at the same price to Suzhou TA&A Ultra Clean Technology. This brings the total commitments received to $111.4 million.

But it won’t stop there. Retail shareholders will have the opportunity to buy $30,000 worth of shares via a share purchase plan that aims to raise a further $10.1 million at $2.25 per new share.

Why is Global Lithium raising funds?

The release notes that the proceeds from the placement and share purchase plan, together with existing cash, will be applied towards a number of activities.

This includes the acquisition of the underlying tenements and the remaining 20% interest in the lithium rights in the Manna Lithium Project from Breaker Resources NL (ASX: BRB) for $60 million.

In addition, the proceeds will be used for exploration at Manna and the Marble Bar Lithium Project, the Manna Feasibility Study, approvals and permitting, camp infrastructure, and general working capital.

Global Lithium’s chair, Warrick Hazeldine, commented:

The outstanding on-the-ground exploration work completed by the Global Lithium team over the past 6 months has delivered impressive results at Manna, affording us the opportunity to now present an offer to Breaker which we believe is a win-win for both companies. The acquisition of the underlying tenements provides Global Lithium with a clearer development pathway as we look to conclude these development focused studies in late 2023.

The Placement announced, along with the accompanying SPP, allows Global Lithium to complete the Manna Transaction whilst continuing to undertake value accretive exploration and study activities. We believe these additional funds will drive long term shareholder value.

The post Why is the Global Lithium share price tanking 9% today? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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Technology provider Whispir Ltd (ASX: WSP) was hammered by the market on Wednesday morning, sending the share price plummeting 18.6%.

After closing Tuesday at 78 cents, the tech stock sold for as low as 63.5 cents soon after the market opened for trade on Wednesday.

So what’s going on?

Not happy, Jan

It seems investors were not happy with the company’s latest update, released before market open.

Whispir has been a high-growth loss-making business that has been trying to reduce its cash burn this year in response to changed market conditions.

But the update for the quarter ending 30 September showed that its cash receipts of $14.42 million is down 15% compared to the prior period.

The figure is also down 11.5% on the same quarter one year ago.

Why did the cash receipt decrease?

Whispir is a provider of cloud-based corporate communications technology. As such, it saw increased demand during the COVID-19 pandemic with many Australians working from home.

The outfit blamed this phenomenon for the reduced cash receipts.

“This quarter’s result reflects the reduction in COVID-19 related revenues compared with the prior comparable period, and the impact of seasonality with the first quarter typically a softer quarter of the year,” Whispir announced to the ASX.

“In contrast, cash receipts were up 38% against the same quarter two years ago – demonstrating that the business is still experiencing strong growth, COVID-19 aside.”

Whispir’s management insisted that its cost-cutting drive has been “effective”.

“Operating cash payments across the three major categories of marketing, administration, and labour (excluding the annual short term incentive payments of $1.60 million which occur in this quarter only) total $14.56 million — slightly below the PQ of $14.84 million,” stated the company.

“This is despite the weakening Australian dollar against the US dollar, which has affected a portion of the company’s cost base.”

Arduous march for investors

It’s been a painful journey for Whispir investors in recent times, with the share price plummeting more than 71% over the past 12 months.

Whispir shares went for as much as $4.72 in July 2020.

According to CMC Markets, the tech stock is currently rated by one analyst each as a strong buy, moderate buy and hold.

The post This ASX All Ordinaries tech share just crashed 19%. What’s doing? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has positions in Whispir Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Whispir Ltd. The Motley Fool Australia has recommended Whispir Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The ELMO Software Ltd (ASX: ELO) share price is rocketing higher on Wednesday morning.

At the time of writing, the HR and payroll platform provider’s shares are up 40% to $4.62.

Why is the Elmo share price rocketing higher?

Investors have been bidding the Elmo share price higher today after the company announced the receipt of a recommendable takeover offer.

According to the release, Elmo has entered in a scheme implementation deed (SID) with K1 Investment Management. This SID is proposing a scheme of arrangement that will see Elmo shareholders receive $4.85 cash per share.

Management notes that this represents an “attractive” premium of 100% to the last trading price of Elmo shares on 12 October. This is the final trading day prior to the company announcing that it had received approaches expressing takeover interest.

Based on this offer price, it values Elmo’s equity at approximately $486 million, which is the equivalent of 4.5x annualised recurring revenue (ARR).

Shareholder recommendation

The Elmo independent board committee (IBC) unanimously recommends that shareholders vote in favour of the scheme. This is in the absence of a superior proposal and subject to the independent expert concluding that it is in the best interests of shareholders.

The company also advised that two of its largest shareholders, which hold or control 23.4% of its shares outstanding, have confirmed that they intend to vote in favour of the scheme, subject to the same conditions listed above.

The transaction will be subject to Foreign Investment Review Board (FIRB) approval and other customary conditions.

Elmo’s chairman, Barry Lewin, commented:

The ELMO Independent Board Committee has carefully considered the proposal and believes the offer price of $4.85 cash per share represents compelling value for ELMO shareholders. Whilst ELMO has achieved considerable success to date in Australia/New Zealand and the United Kingdom, the IBC has balanced this against the macroeconomic and execution risks in achieving future plans and has unanimously concluded that the Scheme is a compelling option which realises attractive value for our shareholders.

This won’t be K1 Investment Management’s first Australian tech investment. The Los Angeles-based investment firm has previously invested in the likes of simPRO, Cyara, AroFlo, and RosterLive.

The post Why is the Elmo share price rocketing 40%? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Elmo Software. The Motley Fool Australia has positions in and has recommended Elmo Software. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Coles Group Ltd (ASX: COL) share price is under pressure on Wednesday after releasing its first-quarter sales update this morning.

At the time of writing, shares in the supermarket and liquor store operator are down 1.8% to $16.30. The negative move positions the company’s shares 3.9% away from their 52-week low of $15.67. Meanwhile, the S&P/ASX 200 Index (ASX: XJO) is looking more lively, pushing 0.51% to the upside.

Investors are responding to Coles’ update with a disappointing tone today. But what could be influencing this response, considering group sales grew year on year?

Expectations give rise to disappointment

The Coles first quarter sales update was mostly positive in terms of growth — but investors are not content.

On a year-over-year comparison, supermarkets and express segments experienced growth of 1.6% and 8.4% respectively. However, the performance of the company’s liquor division might have dampened investor sentiment.

According to the release, liquor sales revenue ticked 4.3% lower to $836 million. The blame was put on Coles cycling comparisons to times last year when New South Wales, Victoria, and the ACT were undergoing COVID-19 lockdowns — a tailwind for drink sales.

Another possible culprit for the subdued reaction to the Coles share price today could be the expectations set prior to the release. For example, analysts over at Goldman Sachs had set the bar at a 2.5% increase in supermarket same-store sales and a more modest 1% decline in liquor sales.

As such, despite the positive commentary provided by the Coles Group CEO, Steven Cain, it appears investors are wary of the lacklustre growth presented.

After all, Coles currently trades on a price-to-earnings (P/E) ratio of nearly 21 times. Whereas, the industry average resides closer to 15 times earnings. Though, its larger Aussie rival — Woolworths Group Ltd (ASX: WOW) — fetches an even more premium 26 times ratio.

Will the Coles share price go higher?

Prior to today’s update, various brokers were at odds with where they thought the Coles share price could be heading over the next 12 months.

The most optimistic projection, given by Morgans, included a $20 price target. On the flip side, UBS analysts held a $16.23 target.

Now armed with fresh data, we could see analysts make revisions to their previous Coles share price forecasts.

The post Coles share price struggles despite ‘strengthening sales trajectory’ appeared first on The Motley Fool Australia.

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More reading

• Coles share price on watch following mixed first quarter update
• 5 things to watch on the ASX 200 on Wednesday
• Send in the drones: Why is the Coles share price taking off today?
• 5 ways to be carefree during the next ASX share market downturn
• Is the Coles share price a buy ahead of next week’s quarterly results?

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended COLESGROUP DEF SET. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The Mineral Resources Limited (ASX: MIN) share price is marching higher in morning trade.

Mineral Resources closed yesterday trading for $74.74 per share and is currently trading for $77.48, up 3.65%.

Below, we look at what the S&P/ASX 200 Index (ASX: XJO) listed iron ore and lithium producer just reported for its third quarter activities for the three months through to 30 September.

What’s impacting the Mineral Resources share price?

On the iron ore front, the Mineral Resources share price is lifting, despite the company reporting a 3% quarter on quarter reduction in iron ore shipments to 4.5 million wet metric tonnes (wmt). However, that’s in line with the Mineral Resources’ mine plan and its FY23 guidance of 17.2 – 18.8 million wmt.

The miner achieved an average realised iron ore price of US$72.77 per dry metric tonne (dmt) over the quarter, down 15% from the prior quarter.

As for lithium, the company’s Mt Marion project shipped 56,000 dmt (51% share) of spodumene concentrate over the quarter at an average realised price of US$2,364/dmt. That price includes grade adjustments and product discounts.

According to the release, Mt Marion production was lower than the prior quarter “due to continued mining of lower-grade transitional ore and plant shutdowns”.

Meanwhile, it reported that mining operations continued to ramp up at Wodgina. The first spodumene concentrate was produced from Train 2 in July. Wodgina shipped 26,000 dmt (40% share) over the quarter.

What else happened during the quarter?

All up, Mineral Resources converted a total of 4,703 tonnes (attributable) of lithium hydroxide during the quarter.

The miner also announced its final investment decision (FID) to develop the Red Hill Iron Ore Joint Venture assets with joint venture partners Baosteel Resources Australia, POSCO and AMCI.

Mineral Resources stated the project will see the development of “a new mine, processing plant, airport, accommodation resorts, sealed 150 kilometre haul road, port, marine infrastructure and transhipping vessel fleet”.

The Onslow Iron Project is designed to have a 30 year plus mine life with infrastructure capable of producing 35 million tonnes annually.

What’s next?

The Mineral Resources share price could be getting some support after the company reaffirmed FY23 guidance of 300,000-330,000 dmt (51% share) for spodumene concentrate shipped at Mt Marion.

Wodgina was also reported to remain on track to meet its FY23 shipped guidance of 190,000-210,000 dmt (50% share).

Mineral Resources reported it plans to commence the next phase of drilling in the onshore Perth Basin in December 2022 following regulatory approval for the North Erregulla 1, Lockyer 2 and Lockyer 3 wells.

Mineral Resources share price snapshot

The Mineral Resources share price has been a stellar performer over the past 12 months, up 94%. To put that in context, the ASX 200 is down 8% over the full year.

The post Mineral Resources share price lifts as FY23 lithium guidance reaffirmed appeared first on The Motley Fool Australia.

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• 3 ASX shares to buy no matter what the market’s doing: Auscap
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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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The share market has been through plenty of volatility. Share prices went through a hefty decline between the start of the year and June 2022. But, many share prices are higher than the June level, even though interest rates have risen further.

It’s worth asking the question – has the share market already bottomed?

For example, the S&P/ASX 200 Index (ASX: XJO) has dropped by 10.4% in the year to date. In June it had fallen by 13.6%.

The iShares S&P 500 ETF (ASX: IVV) is down 9.9% in 2022, but it was down 19.8% in June.

Looking at an individual name, the Wesfarmers Ltd (ASX: WES) share price is down 25.7% in 2022. But, in June it was down 30.6%.

There are many other anecdotes of similar recoveries from a bottom in June.

What could suggest whether a bottom has been reached or not?

Writing in the Australian Financial Review, Todd Hoare suggested “several things are missing for a viable low in equity markets”. One example was that the Volatility Index, or VIX, has tended to see a spike closer to 40 before a durable market bottom has occurred, while this year’s peak has been closer to 36.

He also wrote:

Earnings estimates likely need to fall as well. Costs are being challenged at the wages, inventory and soon the interest lines, while central banks are determined to lower aggregate demand (that is, revenue) to lower persistent inflationary pressures. To this end, the US reporting period will serve as a timely guide to the resiliency, or otherwise, of corporate profits.

He also pointed out that, historically, share prices have hit a low before earnings estimates reach a bottom.

An article originally written on Fool.com by my colleague Sean Williams pointed out that, in the past, when approximately 12% or fewer of all Nasdaq-listed shares were above their 200-day moving average then this indicator “helps recognise when those peak periods of pessimism arrive and are a signal for investors to pounce”.

The bottom of the Global Financial Crisis was one of those times (5.23% of shares), the COVID-19 crash bottom was another (7.01%) and the latest one was June 2022 (8.81%). According to Williams, 22% of Nasdaq-listed companies were above their 200-day moving average on 17 October 2022.

My take on the share market situation

It’s impossible to know whether there will be another bottom for the share market or not.

It may seem strange that some share prices are rising even though interest rates continue to climb.

But, I think that the market becomes most pessimistic during rough times when things seem the most unknown, not necessarily when things are the worst. It was around that time in June when central banks, such as the US Federal Reserve and the Reserve Bank of Australia (RBA) started ramping up interest rates at a strong rate. It seemed like a bad surprise, investors didn’t know how high interest rates would need to go. Now things may seem closer to the peak for interest rates.

The situation seemed very unknown in March 2020 as the COVID-19 pandemic unfolded and the market bottomed, even though April was a more difficult month in terms of deaths. The central bank support for the economy probably helped as well.

I certainly think that profitability is going to drop in the second half of FY23 for many businesses, like retailers. But, I believe that June 2022 was the bottom for a number of ASX 200 shares like Wesfarmers and Brickworks Limited (ASX: BKW).

I’m certainly not predicting a rapid recovery of share prices though. I think higher interest rates are here to stay, so this will weigh on asset prices for a while until earnings start to seem like they’re improving again.

The post Has the bottom of the share market now been and gone? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has positions in Brickworks. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Brickworks. The Motley Fool Australia has positions in and has recommended Brickworks and Wesfarmers Limited. The Motley Fool Australia has recommended iShares Trust – iShares Core S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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