The Point

Crispin Murray: What’s driving the market this week?

With barely three weeks to go, Donald Trump has gained momentum in average betting odds, moving to a 56% chance of a win versus 43% for Kamala Harris.

It’s his biggest lead since Harris entered the race. How are investors reacting?

“Market volatility has picked up, but the forward curve has this falling back post-election,” note Pendal’s head of equities Crispin Murray.

“To date, this has not impacted equities and is supported by credit spreads staying low.

“The most likely election outcome is a Democrat or Republican presidential win without sweeping both the House and Congress – and hence being constrained in what they can achieve.

“The main difference in market impact relates to bonds, with Trump’s threat of higher tariffs and less immigration potentially leading to higher inflation in late 2025, and therefore to higher yields.

“This may have limited impact on equities as it could be seen to come with higher growth.”

Crispin explains more in his latest weekly note

Elise McKay: What’s driving equities this week?

Here are the main factors driving the ASX this week, according to Aussie equities analyst and portfolio manager ELISE MCKAY and reported by investment specialist JONATHAN CHOONG.

Read Pendal’s latest weekly equities overview.

Jim Taylor: What’s driving the ASX this week?

Aussie equities: Opportunities in ASX small caps as rate cuts loom

Relative underperformance in the small cap category doesn’t bother experienced, active stock-pickers like Pendal’s Lewis Edgley and Patrick Teodorowski.

“By being dynamic and identifying better-quality smaller companies we’ve been able to navigate that and find money-making ideas,” says Lewis.

“We’ve been able to identify two groups of businesses: structural-growth businesses that we were able to put more capital in at a better valuation; and businesses with more defensive earnings than the market thought, which have rebounded significantly.”

Still, the sector should receive a broad boost when interest rate cuts arrive.

Small caps are historically correlated to changes in interest rates.

“We have a blueprint for this in many cycles, whether it’s the GFC or Covid,” says Lewis.

“Declining interest rates are usually a tailwind for small caps relative to large caps.

“Over the last two or three years, small caps have essentially been driving with the handbrake on.

“We don’t know when rates are going to start coming off. But when they do, small caps should start to get a tailwind.”

Read the full article

Elise McKay: What’s driving equities this week?

The world’s most-watched company, AI chip-maker Nvidia, tumbled this week after disappointing profit guidance and a regulatory speedbump.

Is Nvidia still a buy? And what do the results mean for ASX-listed, AI-related stocks?

Even before its latest share price tumble, Nvidia’s valuation wasn’t unreasonable at around 15 per cent below its five-year average multiple, says Pendal analyst and PM Elise McKay.

“Data-centre demand remains strong and broad-based across hyperscale (the biggest data-centre customers), consumer internet and enterprise,” says Elise.

Sales forecasts in the sovereign sector have strengthened to low double-digit billions in FY25, she points out.

“This reflects desire among sovereign states to build AI models based on local datasets, language and cultures.”

Nvidia’s profit margin guidance reflected the introduction of its latest “Blackwell” chips, which start at a higher cost before reaching scale during 2025, Elise says.

Strong growth in data centre revenue (154 per cent year-on-year) is supportive for ASX-listed plays such as Goodman (GMG), NextDC (NXT), Macquarie Telecom (MAQ) and Infratil (IFT), says Elise. (Pendal holds GMG, NXT and MAQ).

Read Pendal’s latest weekly equities overview

Crispin Murray: What’s driving the market this week?

MARKETS continued trailing back toward their July highs last week, driven by commentary from Federal Reserve Chairman Jay Powell.

Powell expressed confidence that a soft landing is achievable and said that the Fed would focus on keeping the labour market strong as it makes progress towards its inflation target.

The “Fed put” is back in terms of monetary policy, providing important insurance against recession risk.

US bonds rallied and the market is now pricing in a roughly 50% chance of a 50 basis point (bp) rate cut in September.

The US Dollar weakened, which is supportive for risk assets, and crypto rallied, indicating that liquidity is coming back to markets.

The S&P 500 gained 1.47%, while the S&P/ASX 300 finished up 0.90%.

The main check on equities is the fear of September, which is seasonally the weakest month.

Local earnings results remain supportive, albeit with some pockets of weakness which tend to reflect specific industry issues rather than broader economic malaise.