'Grumpy' investors take stocks lower

UNSPECTACULAR profit results from BHP Billiton and Rio Tinto and a lower growth forecast from the Reserve Bank dragged the sharemarket lower yesterday.

By InvestSMART · 11 Feb 2012

By InvestSMART ·
11 Feb 2012

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UNSPECTACULAR profit results from BHP Billiton and Rio Tinto and a lower growth forecast from the Reserve Bank dragged the sharemarket lower yesterday.

The S&P/ASX 200 Index slipped 38 points to close at the low of the day, 4245.3 points a loss of

5.8 points for the week.

Newcrest Mining rose 57? to $34.01 after the world's fifth-biggest miner provided some cheer, beating market expectations with record first-half earnings, driven largely by stronger sales of gold, silver and copper.

The results helped improve investor sentiment after BHP and Rio reported weaker than expected profits earlier in the week.

Rio, the world's third-largest mining company, recorded a second-half loss, its first in four years, of 59 per cent. The results were released after the market close on Thursday, and the stock was driven down $1.62 yesterday to $69.98. BHP Billiton lost 86? to $36.30.

"BHP Billiton and Rio's results have been good, but they have not met the market's expectations," said Options Express analyst Ben Le Brun. "If they're not breaking records and having cash returned to shareholders by way of capital management initiatives, then the market seems to be pretty grumpy."

CMC Markets chief market analyst Ric Spooner said: "The Australian market is struggling to go [higher] with the US market because of the effects of the currency [the higher Australian dollar], the failure [of the Reserve Bank] to cut interest rates, and the reassessment that people are making on the near-term consequences of that.

"With the miners in Australia, the strength of the Australian dollar weighs on their earnings and dividend steams."

Mr Spooner said ANZ fulfilling its threat to break free from the RBA's cash-rate cycle had added to the negative mood.

Although there had been positive developments with the Greek debt crisis, investors were not convinced there would be any resolution to the long-running saga until the bailout funds had actually been delivered, he said.

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Frequently Asked Questions about this Article…

Why did the ASX (S&P/ASX 200) fall recently and how big was the drop?

The sharemarket fell after weaker-than-expected profit results from major miners and a lower growth forecast from the Reserve Bank. The S&P/ASX 200 slipped 38 points to close at the low of the day, 4,245.3 points, leaving a small weekly loss.

How did BHP Billiton and Rio Tinto's results affect investor sentiment on the ASX?

Both BHP Billiton and Rio Tinto reported results that didn’t meet market expectations, which soured sentiment. Rio recorded a second-half loss (its first in four years) and its share price was pushed down to about $69.98 after a $1.62 fall; BHP’s stock also weakened, contributing to the market’s negative tone.

What did Newcrest Mining report and why did it lift investor confidence?

Newcrest Mining beat market expectations with record first-half earnings, driven largely by stronger sales of gold, silver and copper. Its share price rose to about $34.01, which helped improve investor sentiment after the weaker BHP and Rio results.

How does the strength of the Australian dollar affect miners’ earnings and dividends?

A stronger Australian dollar can weigh on miners’ reported earnings and dividend streams because it reduces the value of export revenues when converted back to AUD. Market analysts pointed to the higher currency as a headwind for Australian miners.

What role did the Reserve Bank’s outlook and interest-rate moves play in the market decline?

A lower growth forecast from the Reserve Bank and the perception that it failed to cut interest rates added to the market’s negative mood. Analysts said the RBA’s stance was a factor in the market struggling to gain momentum.

How did ANZ’s actions influence the negative mood among investors?

Analysts noted that ANZ’s move to break free from the RBA’s cash-rate cycle contributed to the negative mood, reinforcing concerns about interest-rate direction and near-term consequences for the market.

Should investors be worried about the Greek debt crisis based on recent market commentary?

The article notes there were positive developments on the Greek debt situation, but investors remained unconvinced a resolution was secured until bailout funds were actually delivered. That ongoing uncertainty was keeping some investors cautious.

What does it mean when analysts say the market is 'grumpy' and how should investors read that?

Analysts explained the market turns 'grumpy' when big companies deliver results that don’t beat expectations or when they don’t return cash through capital management. In that environment, stocks can be punished even if results are reasonable, so investors should pay attention to earnings surprises and capital-return signals.