A strong start to Tuesday morning saw the ASX push close to 5800 points, but the five-day rally ran out of steam in the afternoon as investors scooped up profits in blue chip stocks.
The iron ore price surged above $US90 a tonne, which initially provided support for the resources giants, but even some positive earnings results couldn't keep the sellers at bay.
The benchmark S&P;/ASX 200 Index and the broader All Ordinaries Index each closed in the red, down 0.1 per cent to 5755.2 points and 0.03 per cent to 5810.9 points respectively.
"Given that our local index was approaching the psychological barrier of breaking through 2017 highs, it's not surprising to see a level of profit taking," said Gary Huxtable, client adviser at Atlantic Pacific Securities.
The big four banks, which make up 60 per cent of the ASX 200, sank lower towards the end of the session and weighed on the bourse. And despite a more than 6 per cent leap in iron ore, BHP Billiton failed to close in the black and main rival Rio Tinto only managed to claw 0.3 per cent higher. Iron ore pure play Fortescue Metals finished flat.
Earnings season is well and truly underway. Furniture business Nick Scali rocketed 9.6 per cent higher to $7.05 after reporting a 45 per cent rise in net profit after tax for the first half of the year, driven by a significant increase in revenue.
There were a few mishaps, with Cochlear's share price diving 3.6 per cent to $128.95 despite reporting a 19 per cent increase in first-half profits. Traders pointed to the sharp decline in orders from the Chinese government as a worry, but nonetheless the company declared an 18 per cent increase to its interim dividend.
Treasury Wines Estates also slumped 4.7 per cent to $11.33 despite reporting a hefty surge in half-year earnings. Demand has picked up in Asia and the Americas and the company's operating margins have expanded by more than 4 per cent. Traders suggested the fall was already priced into the company's valuation, prompting a few to take profits.
Shares in Challenger Financial also slipped 2.2 per cent to $11.38 after it reported its net profit after tax for the first half fell from $234 million to $202 million, largely due tot he sale of Kapstream Capital. The company increased its interim dividend by 6 per cent from the previous year.
Stock watch: Wesfarmers
Wesfarmers edged slightly lower on Tuesday, closing down 0.5 per cent to $42.13 after telling investors that Richard Goyder would step down from the diversified group after 13 years at the helm. His departure was widely speculated, and the elevation of his replacement, Rob Scott, is of little surprise. The incoming group managing director promised he wouldn't be pursuing major changes in strategy or business model, and said the only growth he is interested is in shareholder returns. Wesfarmers' share price has declined from highs of $45.51 in October, which has led some analysts to expect it is something of a bargain at current levels. But the analyst community is highly divided on the stock.
Market movers
Wall Street's bulls
The market capitalisation of the S&P500; index soared to $US20 trillion on Monday, while Apple rose to an all-time high. The index has gone 85 days without a decline of at least 1 per cent, its longest such streak since 2006, Marketwatch reported. Sam Stovall, chief investment strategist at CFRA Research, said the US stock market valuation as a share of GDP is at its highest level since the data series began in 1989. The exuberance has spread to CEOs - 51 per cent used the word "optimistic" on earnings calls this quarter, according to a Bank of America analysis.
Business confidence
Business confidence and conditions posted a surprise jump in January, with conditions jumping 6 points from an already strong 10 in the NAB monthly conditions index. Confidence, which has lagged behind, rose 4 points to 10. ANZ's economists said that "businesses have started 2017 with a bang": "This strong result confirms our view that the economy is in fundamentally good shape, and the surprise weakness in Q3 GDP should prove to be only temporary. The only real downside to an otherwise strong report is the divergence in conditions across industries."
Chinese inflation
Inflation picked up in China over the 12 months to January, adding to views that Beijing may further tighten monetary policy this year. Producer prices rose 6.9 per cent, near six-year highs, as prices of steel and other raw materials extended a torrid rally, adding to views that global manufacturing activity is building momentum. Consumer inflation rose to near three-year highs, lifting 2.5 per cent, the highest since May 2014 and just above market expectations of a 2.4 per cent rise and following a 2.1 per cent gain in December.
Iron ore forecasts
The iron ore rally continued unabated on Tuesday, with Dalian futures rising for a sixth day, up 0.6 per cent at 704.5 yuan, after the spot price hit $US92.23 a tonne. Analysts' forecasts have struggled to keep up with the incredible bounce in prices over the past six months, chronically underestimating the strength of the steelmaking material. At the start of the September quarter they expected iron ore on average to fetch $US46, instead it went for $US58.32. Over the three months to December 31 the expectation was for $US51, but iron ore actually averaged $US70.98. At the end of 2016, the median estimate was for $US58, but so far it's $US81.89.