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Novonix share price shakes off losing streak to post second day of gains
The Novonix Ltd (ASX: NVX) share price is bucking its lengthy losing streak.

Finally.

Shares in the battery technology company are up 3.9% to $1.97 at the time of writing, having earlier posted gains of more than 5%.

Yesterday, the Novonix share price closed up 9.2% after hitting new 52-week lows on Monday.

Here’s what ASX investors are mulling over.

What are ASX investors considering?

The Novonix share price has come under major selling pressure in 2022, down a painful 82% despite the past two days of gains.

Investors sold off the company as both domestic and global interest rates rapidly took off from their historic lows at the beginning of 2022 to combat fast-rising inflation.

Higher interest rates are bad news for equities in general, but particularly onerous to loss-making companies reliant on debt to fund their future growth and profitability plans. As rates run higher, the cost of those future earnings becomes dearer.

And the Novonix share price took a hit after the company reported a big leap in its net loss for FY22. That came in at $71 million compared to a net loss of $18 million in FY21.

Novonix ended the financial year with a cash balance of $207 million. But management said that won’t be enough to fund its expansion plans, saying those plans will “involve significant capital expenditure, and additional funding beyond the existing cash balance at 30 June 2022 will be required”.

Novonix shares look to be rebounding over the past two days following a dovish shift from the Reserve Bank of Australia (RBA). The RBA opted to raise rates by a modest 0.25% rather than the 0.50% hike markets had widely priced in. Good news, for loss-making stocks.

Novonix share price snapshot

The 82% loss posted by the Novonix share price so far in 2022 offers a dramatic contrast to the price movement in 2021.

2021, of course, was a year when the official cash rate in Australia stood at the historic low of 0.10%. A year when the RBA also told ASX investors they could expect rates to remain at rock bottom levels, likely through 2024.

With record low funding costs in mind, the Novonix share price rocketed an eye-popping 904% from the closing bell on 31 December 2020 through to 2 December 2021, when it hit $12.15 per share.

The post Novonix share price shakes off losing streak to post second day of gains appeared first on The Motley Fool Australia.

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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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5 October 2022
Macquarie reveals ASX 200 shares ‘more likely to outperform in a bear market rally’
Top broker Macquarie says a “bear market rally” may have already started following yesterday’s “dovish” interest rate increase along with weak US ISM Manufacturing data.

The S&P/ASX 200 (ASX: XJO) is up 1.56% at the time of writing after closing 3.75% higher yesterday.

That was the index’s best performance in more than two years. Translation: The market loved the Reserve Bank of Australia’s decision to raise rates by only 0.25% — not the 0.5% that the market expected.

Top broker names ASX 200 shares poised to outperform

In The Australian today, Macquarie’s Australian equity strategist Matthew Brooks said a number of top 100 shares would likely outperform in a bear market rally.

The shares include ASX gold mining stocks and Australian real estate investment trusts (REITs).

The broker says these ASX 200 shares are the furthest below their long-term trend and are rated outperform.
- Newcrest Mining Ltd (ASX: NCM) — share price down 26% year to date
- Evolution Mining Ltd (ASX: EVN) — share price down 48% year to date
- Goodman Group (ASX: GMG) — share price down 35% year to date
- Dexus Property Group (ASX: DXS) — share price down 28% year to date
- GPT Group (ASX: GPT) — share price down 26% year to date
- James Hardie Industries plc (ASX: JHX) — share price down 39% year to date
- Ramsay Health Care Limited (ASX: RHC) — share price down 20% year to date
- ASX Ltd (ASX: ASX) — share price down 21% year to date
- ARB Corporation Limited (ASX: ARB) — share price down 46% year to date
- Reliance Worldwide Corporation Ltd (ASX: RWC) — share price down 44% year to date.
Brooks said:

We think these stocks are more likely to outperform in a bear market rally.

In terms of stocks that may lag, A2 Milk Company Ltd (ASX: A2M) is rated underperform, while Woodside Energy Group Ltd (ASX: WDS), Medibank Private Ltd (ASX: MPL), Brambles Limited (ASX: BXB), WiseTech Global Ltd (ASX: WTC) and Altium Limited (ASX: ALU) are rated neutral.

The post Macquarie reveals ASX 200 shares ‘more likely to outperform in a bear market rally’ appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has positions in James Hardie Industries plc, Macquarie Group Limited, and Woodside Petroleum Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Altium, Reliance Worldwide Corporation Limited, and WiseTech Global. The Motley Fool Australia has positions in and has recommended WiseTech Global. The Motley Fool Australia has recommended A2 Milk, ARB Corporation Limited, Macquarie Group Limited, Ramsay Health Care Limited, and Reliance Worldwide Corporation 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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5 October 2022
Raising funds outside the ASX comes at a cost for Zip
It has been a great day for the Zip Co Ltd (ASX: ZIP) share price.

In afternoon trade, the buy now pay later (BNPL) provider’s shares are up 7% to 75 cents.

This follows a rebound in the tech sector, which has seen the S&P/ASX All Technology Index rise almost 4% today.

However, despite today’s strong gain, there’s no getting away from the fact that the Zip share price is having a tough year.

For example, since the start of 2022, the BNPL provider’s shares are down over 82%.

What’s weighing on the Zip share price?

Tech valuations, the market’s aversion to loss-makers, and doubts over Zip’s pathway to profitability have been weighing on its shares this year.

Also potentially putting a bit of pressure on the Zip share price recently has been concerns over rising funding costs.

For example, as the AFR reports, Zip is currently looking to raise $300 million from debt markets to fund its receivables via the Zip Master Trust Series 2022-1.

A year ago, when Zip raised $650 million from the Zip Master Trust Series 2021-2, it was paying 0.9% to 6.3% margins. However, this time around, it is having to pay 1.95% to 12.5% margins for the $300 million.

What is unclear, though, is how much of this increase is driven by rising rates and how much reflects lending risks in the current economic environment.

The response

S&P Global has been looking at the offering and spoke reasonably positively about it. The ratings agency notes that some of the strengths of this offering are:

The relatively small average receivable size, which reduces credit exposure per borrower. That the receivables are generated through a diversified and large number of retailers and the portfolio is not overly exposed to any merchant, with the top exposure representing less than 2.3% of total transaction volume.

That the presence of a series-specific liquidity facility, in our view, mitigates potential disruption risks to timely interest payments on the rated notes during a servicer transition period following a servicer default.

However, there are some weaknesses that the agency has observed, which could be what is raising the cost of this funding. This includes:

That with an initial revolving period, the credit characteristics of the portfolio could change, potentially undermining the portfolio’s overall credit quality. This is partly mitigated by documented eligibility criteria and a specified limit on the addition of new receivables over 12 consecutive months, which limits the potential shift in the composition of the portfolio.

With the cash rate continuing to rise, it will be interesting to see whether funding costs go from here and what impact this ultimately has on margins and its profitability targets.

The post Raising funds outside the ASX comes at a cost for Zip 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 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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5 October 2022
Is the outlook for ASX 200 shares in Q2 brighter since the RBA’s interest rate decision?
TheÂ S&P/ASX 200 (ASX: XJO) is up 1.58% today as the benchmark index enjoys a second day in the sun.

The ASX 200 was in a happy place yesterday, delivering its best performance in more than two years. The ASX 200 closed 3.75% higher at 6,699.3 points.

This followed the Reserve Bank of Australia’s decision to raise interest rates by 0.25% — not the 0.5% that the market and many economists anticipated.

So, what does this mean for ASX 200 shares as we move forward into the second quarter of FY23?

What will ASX 200 shares do in Q2?

So, to recap, Q1 was kinda dismal for the ASX 200. Over the first three months of FY23, the index fell 1%.

Investors were taken on a rollercoaster through reporting season. Good news from individual companies was dampened by broader worries about inflation, interest rates, and a potential United States recession.

Given the market elation over yesterday’s lower rate rise, one must assume that RBA interest rate decisions are going to directly determine how the ASX 200 performs in Q2 FY23.

Over to the experts to explain what might happen.

Lower rate rise ‘positive for the markets’

Shaw & Partners senior investment adviser James Nicolaou says the RBA’s decision might signal that the other rate increases this year are “starting to have the desired effect”.

And that’s “positive for the markets and economy,” he says in an article in The Australian today.

In the same article, Betashares chief economist David Bassanese said:

Unlike the US Federal Reserve, the RBA is thinking twice about pushing the economy into a recession it might not need to have.

In a separate article also published by The Australian, top broker Macquarie said a “bear market rally” may have already started following the “dovish” RBA increase andÂ weak US ISM Manufacturing data.

Why did the RBA choose a lower rate rise?

There are going to be lots of opinions in the media today about why the RBA chose to go 0.25% this time around. Why don’t we go straight to the horse’s mouth for a clearer insight?

In a statement yesterday, RBA Governor Philip Lowe said:

The cash rate has been increased substantially in a short period of time. Reflecting this, the Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia.

So, sounds like the board is happy to slow things down for a bit after a series of more aggressive hikes. And that’s going to be good for ASX 200 shares if yesterday’s reaction is anything to go by.

Are this year’s rate hikes working to curb inflation?

So, let’s review. Interest rates began to rise in May this year with an initial 0.25% bump. It was the first rate rise since November 2010. Yeah. Major.

The RBA then bumped up rates by 0.5% every month until yesterday’s 0.25% decision. So, the official cash rate is up 2.5% in six months.

The banks are largely passing on every hike in full to borrowers. So, on the average Australian mortgage of $600,000, borrowers are now paying more than $1,250 extra per month in interest. Eek.

You’d think that would be more than enough to disrupt most household budgets and cause a change in spending.

But we don’t know the impact yet, as inflation continues to rise for now. There’s a lag effect with these things.

Time will tell.

The post Is the outlook for ASX 200 shares in Q2 brighter since the RBA’s interest rate decision? appeared first on The Motley Fool Australia.

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Motley Fool contributor Bronwyn Allen has positions in Macquarie Group Limited. 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 recommended Macquarie 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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5 October 2022
Flight Centre shares: Buy, hold, or fold?
It’s 2022, COVID-19 restrictions are continuously easing across Australia and around the world, and the travel sector appears to be regaining some lost ground lost. That’s surely good news for the Flight Centre Travel Group Ltd (ASX: FLT) share price, right?

Well, that depends on who you ask.

Flight Centre shares have dumped 19.31% so far this year to trade at $15.03 at the time of writing.

That’s more than 50% lower than they were trading prior to the pandemic. Though, the stock has lifted around 70% from its March 2020 low.

Comparatively, the S&P/ASX 200 Index (ASX: XJO) has slipped 10% so far this year and around 5% since COVID-19 took markets by storm.

So, what might the future hold for Flight Centre shares? Let’s take a look.

Could Flight Centre shares offer 30% upside?

While most brokers remain neutral on Flight Centre shares, many are tipping a notable upside for the stock.

But before we get to the bulls, let’s check in with the company’s short position.

Flight Centre has been the market’s most shorted stock for the whole of 2022 so far. Nearly 15.6% of its shares were in the hands of short sellers at last count. That means plenty of market participants believe the travel share will slip further.

Yet, Morgans, for one, is relatively optimistic on the ASX 200 travel giant. Though, the broker has noted several risk factors facing the company.

It has a hold rating and an $18.25 price target on the stock, my Fool colleague James reports.

On the company’s financial year 2022 results, Morgans senior analyst Belinda Moore said the broker expects Flight Centre to post “a strong recovery” this fiscal year.

However, its changing business model, execution, and reduced front-end airline commissions were flagged as having the potential to weigh on earnings.

Meanwhile, Flight Centre hasn’t provided guidance for financial year 2023, blaming an uncertain outlook for the industry’s post-COVID recovery.

Though, it did return to an underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) profit late in financial year 2022.

Goldman Sachs is more hopeful for the Flight Centre share price.

It has tipped the stock to lift 30% to $19.60. The broker also expects the company to return to dividends next financial year.

The post Flight Centre shares: Buy, hold, or fold? 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 positions in and has recommended Goldman Sachs. The Motley Fool Australia has recommended Flight Centre Travel 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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5 October 2022
How did the Pilbara Minerals share price surge 25% during the ‘worst month of the year’?
The Pilbara Minerals Ltd (ASX: PLS) share price was enjoying another strong run today, up 2.9% in late morning trade, before heading sharply the other direction. Shares are currently down 3.13%.

This comes amid a wider run higher for the markets, buoyed by yesterday’s rather dovish RBA rate decision.

That’s today’s price action.

But what really impressed us is that the Pilbara Minerals share price leapt a stellar 24.9% in September, classically billed as the worst month of the year for equity markets.

How did the Pilbara Minerals share price rocket higher in September?

September did indeed live up to its poor reputation for most share investors.

From the closing bell on 31 August through to the end of trading on 30 September, the S&P/ASX 200 Index (ASX: XJO) fell a hefty 7.3%. The already battered tech sector fell even harder. The S&P/ASX All Technology Index (ASX: XTX) shed 11.5% over the month.

But the Pilbara Minerals share price went decidedly in the other direction.

The ASX lithium stock only released one price-sensitive announcement in September. After market close on the 20th, the company reported it had scored another increase in the price (up 10% month on month) for lithia content at its latest battery material exchange (BMX) auction.

The Pilbara Minerals share price hit another new all-time high on the news.

What’s supporting ASX lithium shares more broadly?

More broadly, the miner also benefited from continued strong demand and prices for lithium across the globe.

As you’re likely aware, the global EV market is booming. As the Australian Industry, Science & Resources Department’s recent quarterly Resources and Energy Report spelled out, 75% of the world’s lithium production goes into rechargeable batteries. And EV sales are forecast to grow by some 900% over the next 10 years.

With supply still struggling to catch up to demand, the department also sees lithium prices shooting higher next year.

According to the report, lithium hydroxide prices are expected “to lift from US$17,370 a tonne in 2021 to US$38,575 a tonne in 2022 and US$51,510 in 2023, and moderate to US$37,650 by 2024”.

A 34% forecast increase in lithium prices next year compared to this year would certainly offer some healthy tailwinds for the Pilbara Minerals share price, now up 173% over the past 12 months.

The post How did the Pilbara Minerals share price surge 25% during the ‘worst month of the year’? appeared first on The Motley Fool Australia.

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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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5 October 2022
RBA increases rates again… but by less than expected. Scott Phillips on Nine’s Late News
Motley Fool Australia Chief Investment Officer Scott Phillips joined Michael Genovese for Nine’s Late News on Tuesday night to discuss the RBA’s latest rates decision, and why they’re tapering increases.

[youtube https://www.youtube.com/watch?v=jSscJ6kcyX0?feature=oembed&w=500&h=281]

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Motley Fool contributor Scott Phillips 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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5 October 2022
‘Significance cannot be understated’: Why this ASX lithium share is surging on Wednesday
The Latin Resources Ltd (ASX: LRS) share price is having a strong day.

At one stage today, the lithium explorer’s shares were up as much as 19% to 12.5 cents.

In late morning trade, the Latin Resources share price has pulled back but remains up 5% to 11 cents.

Why is the Latin Resources share price charging higher?

The catalyst for the rise in the Latin Resources share price today has been the release of results from a drilling program at the Colina Lithium prospect of the Salinas Lithium Project in Brazil.

According to the release, the company has made a discovery of a new lithium mineralised zone, some 500m west of the Colina prospect.

Assay results have confirmed multiple high-grade lithium bearing pegmatites at the prospect. In fact, these results have returned the prospect’s highest-grade intersection to date and confirmed the continuity of grade at depth and along strike.

Significant results

Management appears excited by the news, particularly the results from hole SADD033, which it feels “cannot be understated.”

Latin Resources’ exploration manager, Tony Greenaway, was delighted with the results and appears positive on the future of the Colina prospect. He commented:

The significance of these latest results from hole SADD033 cannot be understated. They confirm that we have a second zone of high-grade lithium bearing pegmatite only 500m to the west of the main Colina resource drilling. This new zone is open in all directions including along strike to the north and south, up-dip to the mapped outcrop which drew us to this area and extending at depth to the east beneath Colina.

Colina West has the potential to add considerable resources to the Company’s maiden JORC Mineral Resource Estimate, which is on track to be delivered in December this year and proves the exceptional prospectivity of the wider project area to the west where the Company has mapped even more outcropping pegmatites that are yet to be drilled.

Now that the drilling needed for the maiden inferred mineral resource estimate for Colina is completed, we can let loose with drilling at Colina West, with the aim of potentially incorporating this second area into the PEA and other studies that the Company has underway.

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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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5 October 2022
Why Bitcoin and Ethereum are rising today
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

What happened

Several cryptocurrencies rallied Tuesday morning based on buyers’ hopes that the Federal Reserve, which has been aggressively raising interest rates this year, could ease back a bit from its hawkish monetary policy.

As of 10 a.m. ET, the price of the world’s largest cryptocurrency by market cap, Bitcoin (CRYPTO: BTC), was up by 4.8% over the previous 24 hours, hovering around $20,000. The world’s second-largest cryptocurrency, Ethereum (CRYPTO: ETH), was 4.2% higher, and the price of XRP (CRYPTO: XRP) was up 6.8%.

So what

Investors have the Reserve Bank of Australia to thank for sending stocks and cryptos higher Tuesday morning after it raised its benchmark rate by 25 basis points (0.25 percentage points) when most experts had expected a 50-basis-point hike. Philip Lowe, governor of the Reserve Bank of Australia, attributed the smaller move to the fact that policymakers have already hiked rates “substantially in a short period of time.”

Furthermore, Lowe and his colleagues are starting to get concerned about the economic outlook and how these rate hikes will affect consumers once their full impact is realized.

“One source of uncertainty is the outlook for the global economy, which has deteriorated recently. Another is how household spending in Australia responds to the tighter financial conditions,” Lowe said in a statement. “Higher inflation and higher interest rates are putting pressure on household budgets, with the full effects of higher interest rates yet to be felt in mortgage payments.”

Fast-rising interest rates have been a massive headwind for crypto and most other risky assets, and have prompted huge declines in their valuations. The U.S. Dollar Index, which tracks the U.S. dollar against other currencies, has also fallen in recent days. That’s another positive for crypto because Bitcoin tends to have an inverse relationship with the dollar.

Despite the news out of Australia, the Federal Reserve is still expected to implement two more big rate hikes before the year ends, although it is possible that plan will change as new data on inflation comes in.

In other news, XRP, the cryptocurrency developed by the founders of Ripple Labs, continues to make gains as it barrels toward what looks to be a favorable outcome in a nearly two-year legal battle that could soon be coming to a conclusion.

The Securities and Exchange Commission (SEC) sued Ripple Labs in 2020 for not registering XRP as a security when it raised funds in 2013, and for not providing enough transparency to investors. But it seems like the SEC is starting to back off. Last month, both Ripple and the SEC submitted filings asking the U.S. District Court for the Southern District of New York to make a summary judgment on the case.

Recently, Judge Analisa Torres ruled that the SEC needs to release documents from a former director, who may have previously written in a speech that he does not believe Ethereum is a security — a piece of evidence that Ripple believes is vital to its case.

Furthermore, SEC Chairman Gary Gensler said at a recent conference that he thinks Bitcoin and Ethereum should be regulated by the Commodities Futures Trading Commission, which crypto advocates would prefer to them being regulated by the SEC.

Now what

While I am not convinced that the Reserve Bank of Australia’s smaller-than-expected rate hike means the U.S. Federal Reserve will ease up in its war on inflation, I’m hopeful that we’ll see a more positive inflation report on Oct. 13, which could help the narrative.

Still, I’ve been impressed with Bitcoin’s ability to hang around the $20,000 level, and I ultimately think Bitcoin and Ethereum will prove to be good long-term buys. I also think XRP is headed toward victory in its nearly two-year-long legal battle, which bodes well for that token.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Bram Berkowitz has positions in Bitcoin, Ethereum, and XRP. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin and Ethereum. The Motley Fool Australia owns and has recommended Bitcoin and Ethereum. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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5 October 2022
Go home, ASX. You’re drunk…
Go home, ASX. You’re drunk.

Frankly, I could have written that at many points in the last 6, 12 or even 18 months as shares ducked and weaved â lower â and been correct.

But Iâm a shares guy. And people assume if Iâm taking exception to share price falls, Iâm just talking my book, or cheering for my side, or whatever.

I hope most of my readers know Iâm a straight-shooter, but if youâre new around here, I wouldnât blame you for thinking I could be as conflicted as the next guy or girl.

Soâ¦ I waited until a day like yesterday (and, probably today) to say it: Go home, ASX. Youâre drunk.

Not literally, of course (though maybe there should be random breath testing on trading floors after lunch!)

But metaphorically.

A jump of 3.7%, like we saw on the ASX yesterday, isâ¦ not rational.Â

(This chart was done before the market closed… and it went higher after that!)

Sure, some of you are thinking âdonât question it, Phillips. Just take the money!â, and I canât blame you.

But if we cast an uncritical eye on the gains, we can get ourselves in all sorts of trouble.

We can become the sort of people who take credit for the good times, but blame others for the bad.

We can become people who think the only good outcomes are the ones we agree with, and everything else is a conspiracy.

You get the idea.

So while Iâm always happy to see my portfolio grow in size (and doubly after the last 12 months or so of falling share prices, especially for growth companies), I want to keep balanced â and to help you do the same.

So, letâs put a 3.7% gain in perspective.

Over the last 30 years, the ASX has gained an average of 9.0% per year.

In other words, in a single day, the ASX jumped by 41% of an average yearâs return.

(And when you consider that dividends are a large chunk of that 9% return, yesterdayâs jump probably represents well more than half of an average yearâs capital gain!)

Does it seem logical to you that such a one-day gain would make sense, in the cold light of day?

Me either.

And yes, falls of a similar magnitude are usually overdone, too!

Days like these have only one rationale: emotion.

Sometimes irrational exuberance.

Other times, irrational fear.

But irrational, in either case.

Because remember, a share price is – should be – the sum total of all future per-share cash flows, earned by a company, totalled up (and then discounted because $1 today is worth more than $1 in 20 years time, thanks to inflation and other things).

So, when JB Hi-Fi Limited (ASX: JBH)âs shares jumped 6% yesterday, that implies that the total future cash flows of that business are going to be 6% higher.

Not tomorrow. Not next week, next month or next year.

Forever.

Now, forever is a long time.

So letâs wind it back a little.

Last year, JB earned $5.50 per share in cash flow, according to CommSec.

Letâs say it grows at a modest 5% per year, from here, over the next 10 years.

Iâll save you the maths and just tell you that (without discounting it back) thatâs $96 over the next decade.

Does anyone really think that between 10am and 4pm yesterday, that jumped to $102?

That somehow, something happened yesterday thatâll send 6% more people into one of their stores?

Yes, yes, the RBA raised by less than expected.

But the market was already up 2% by then.

And do you really reckon that anyone who placed a trade for JB Hi-Fiâs shares yesterday can accurately predict whatâs going to happen to interest rates over the next 9 years and 11 months?

Me either.

So, yeah. A 3.7% move in a single day is almost always silly.

And it tells you more about the emotion of the market, than with the fundamentals of a business.

By all means, enjoy the good days. And bear with the bad days.

But donât fall into the trap of letting them tell you anything about the quality or valuation of those businesses!

Fool on!

The post Go home, ASX. You’re drunk… appeared first on The Motley Fool Australia.

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Motley Fool contributor Scott Phillips 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 recommended JB Hi-Fi 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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5 October 2022