Market Highlights: ASML’s gloomy outlook triggers Nasdaq sell-off; as expert flags overvalued ASX stocks

ASX set to decline amid Wall Street losses 
ASML’s outlook drags tech shares lower
Morningstar warns of stock overvaluation

The ASX is set to drop when the market resumes on Wednesday following losses on Wall Street. At 8am AEDT, the SPI ASX200 futures contract was pointing down by 0.4%.

Overnight, Europe’s most valuable tech company, ASML, led a tech rout on Nasdaq after the company released a gloomy outlook.

The Dutch chipmaker warned of a slower recovery in the semiconductor market and cut its guidance for next year. ASML’s CEO pointed to cautious customers outside of AI. Plus, ASML said it expect sales to China to drop from nearly half of its revenue to about 20% next year due to export restrictions.

Nvidia sold off by 4.7% and Arm by 7% after the report release, dragging the Nasdaq index lower by 1%. Both the S&P 500 and blue chips Dow Jones also fell by 0.75%.

“We worry that valuations are getting stretched, as stocks are near ‘priced to perfection,” said Lamar Villere, at Villere & Co.

Apple shares however hit a record high early on, briefly pushing its market cap to $US3.6 trillion, before retreating to a 1.1% gain.

LVMH’s sales of luxury fashion and leather goods have dropped for the first time since the pandemic, hit hard by a decline in demand from Chinese shoppers. Its shares fell by 2% in Paris.

Adidas has raised its annual profit target for the third consecutive quarter, driven by strong demand for retro sneakers like the Samba and Yeezy inventory. Shares fell by 1.2% in Frankfurt.

Pharmacy stock Walgreens Boots Alliance shares surged about 16% after the company announced its plans to close 1,200 stores over the next three years as part of a turnaround strategy.

United Airlines posted third-quarter results that exceeded expectations for both revenue and earnings. Shares rose around 1%.

Trading in Trump Media & Technology stock was briefly halted due to volatility. The stock fell 5% in late afternoon trading after surging over 13% earlier in the day. The cause of the sudden drop is unclear, but it ended the day 10% lower.

Outside of earnings, energy was another major focus overnight. Oil prices tumbled roughly 4% after reports indicated that Israel might hold off on striking Iran’s oil and nuclear facilities in retaliation for the recent attack.

Back home, Rio Tinto (ASX:RIO) is set to publish its Q3 operations review at 8:30 AM AEDT, while BHP (ASX:BHP) plans to release its review on Thursday morning.

Beware of ASX stock overvaluation – Morningstar

The ASX reached record highs in the September quarter of 2024, with the S&P/ASX 200 closing at 8,270.

Despite this impressive performance, Morningstar’s analysis shows that, on average, stocks are trading at a 6% premium to their fair value estimates, suggesting modest overvaluation.

This is particularly pronounced in the financial sector, which is trading about 8% above fair value, says Morningstar. In this space, Commonwealth Bank (ASX:CBA) is currently regarded as the most overvalued, trading 40% above its fair value.

Iron ore stocks are also overvalued, says Morningstar. After China’s stimulus announcement, iron ore prices surged to US$110 per metric ton from US$90 just weeks prior, pushing the materials sector to a 5% premium to fair value, still below the financials but indicating overvaluation.

Meanwhile, the energy sector stands out as the most undervalued, says Morningstar, trading around 25% below fair value.

“Coal miners Whitehaven Coal (ASX:WHC) and New Hope Corp (ASX:NHC) look cheap, as do Woodside Energy Group (ASX:WDS) and Santos (ASX:STO) , the latter trading at almost half our fair value estimates,” wrote the research firm.

The divergence between large and small caps is stark, says Morningstar. The 20 largest stocks on the ASX, which account for almost 60% of the benchmark S&P/ASX 200 index, trade at a premium of nearly 12%.

“Very few large caps trade at a discount, except for Santos, Woodside, Telstra, and CSL. ANZ is the only major bank close to fairly valued,” Morningstar said.

In other markets …

Gold price rose by 0.5% to US$2,662.74 an ounce.

Oil prices fell by 4%, with Brent crude now trading at US$74.67 a barrel.

The benchmark 10-year US Treasury yield fell by 6 basis points (bond prices higher) to 4.03%.

The Aussie dollar was down 0.3% to US67.07 cents.

Bitcoin climbed by 1.4% in the last 24 hours to US$66,949, while Ethereum tumbled by 1% to US$2,601.

And iron ore slipped by 1% to $US106.40 a tonne.

5 ASX small caps to watch today

Harmoney Corp (ASX:HMY)
Harmoney saw its Australian loan originations rise by over 50% in the first quarter of FY25, The company said it is now on track to achieve a 20% cash return on equity by the second half of FY25. Net interest margins improved to 8.9%, with new lending margins exceeding 10%. Credit losses also declined to 3.7%, while risk-adjusted income increased to 5.1%. With low arrears and a cost-to-income ratio of 21%, Harmoney says it is well-positioned financially, boasting over $900 million in total warehouse capacity and ample cash reserves.

Nyrada (ASX:NYR)
Nyrada has successfully completed safety studies for its lead drug candidate, NYR-BI03, which shows a strong safety profile and good tolerance in preclinical tests. The results from a rat toxicology study support Nyrada’s regulatory submission to the Human Ethics Research Committee, moving it closer to starting its first Phase I clinical trial in late 2024. NYR-BI03 is designed to protect the brain from stroke and traumatic injuries, and preclinical studies have demonstrated significant neuroprotective and cardioprotective effects. This marks an important milestone for Nyrada as it prepares to enter human trials, targeting major health markets.

Greenvale Energy (ASX:GRV)
Greenvale has acquired an 80% interest in the Tobermorey Uranium Project, located 400km east-north-east of Alice Springs in the Northern Territory. The project comprises two large exploration licences, EL33692 and EL33621, which are highly prospective for sandstone-hosted uranium mineralisation, featuring multiple uranium anomalies within extensive palaeodrainage areas. The initial acquisition agreement with Gempart also allows Greenvale to move forward without incurring significant upfront costs, having paid approximately $10,000 to cover data acquisition expenses. This acquisition follows Greenvale’s recent purchase of the Douglas Uranium Project and adds valuable drill targets.

Condor Energy (ASX:CND)
Condor has completed a technical review of the Piedra Redonda Gas Field, revealing multiple development options. These include gas-to-power projects and the delivery of compressed natural gas (CNG) for industrial and domestic use. The review shows promising deliverability from the discovery well C-18X, which tested strong gas flow rates. Current estimates suggest contingent resources of 404 billion cubic feet of gas, with the potential for an additional 2.2 trillion cubic feet. Condor plans to update its resource estimates using new seismic data and will begin feasibility studies for a gas-to-power project, aiming to find the best path for commercialising the gas field.

Centaurus Metals (ASX:CTM)
Centaurus has made promising discoveries in its initial drilling at the Boi Novo Copper-Gold Project in Brazil, identifying two types of mineralisation. At the Nelore West Prospect, drilling uncovered a 13.4m wide high-grade breccia zone, along with broader mineralised sections. Results from the Presley Prospect also revealed high-grade breccia zones with notable copper grades. In addition, drilling at Nelore West and Nelore East showed extensive low-grade copper-gold mineralisation across large areas. Encouraged by these findings, Centaurus plans to extend its drilling campaign by 2,000m through the end of 2025.

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