Morning Wrap: ASX 200 flat, Nasdaq enters correction territory + Charts of the week

Major US benchmarks continued to sell off as earnings season takes a turn for worse, the US economy grew almost 5% in the third quarter, Meta becomes the latest megacap tech company to tumble on earnings, the Yen hits a 33-year low while boosting the Nikkei to a 33-year high, the key takeaways from Woolworths and Pilbara Minerals quarterlies plus charts of the week.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 lower and finished near worst levels (Source: TradingView)

MARKETS

• Major US benchmarks lower, finished near worst levels

• S&P 500 posted its seventh decline in the past eight sessions

• Magnificent Seven a major drag on benchmarks, with the Equal-weight S&P outperforming the cap weight index by ~100 bps

• Meta (-3.7%) the latest heavyweight to tumble on soft earnings. Alphabet and Meta have lost a combined US$450bn in market cap this week

• The path of least resistance remains risk-off, driven by the usual themes including upward pressure on rates, lagged effects of tightening, growth headwinds for the upcoming quarter, underwhelming earnings and guidance, Magnificent Seven underperformance, systematic selling pressure and geopolitical tensions 

• S&P and Nasdaq begin to enter correction territory after 10% drop from July peak (Bloomberg)

• “Nasdaq had its worst day since Feb 21 as Alphabet had its worst day since March 2020; and the Index is now in correction territory, having fallen 10.7% from its July 19 highs … S&P 500 failed to hold its 200-day moving average and that has triggered significant systematic selling.” – JPMorgan

• Soaring Treasury yields threaten long-term performance of stocks (Reuters)

• US defence spending jumped 4.9%, fastest growth since 2019 (Bloomberg)

STOCKS

• Meta shares slide after warning on economic uncertainty (FT)

• Ford and UAW reach tentative labor agreement (Reuters)

• IBM software sales up 8%, Q3 earnings and revenue beat (CNBC)

• Whirlpool cuts guidance, points to weak consumer demand (Yahoo)

• More alarm bells sound on slowing demand for electric vehicles (Reuters)

KEY EARNINGS

Meta (-3.7%): Double beat, most profitable quarter ever with highest operating margin in two years but fourth quarter revenue guidance was softer-than-expected, management flagged ad spend downturn from Middle East events.

• Middle East impact: "We have observed softer ad spend in the beginning of the fourth quarter correlating with the start of the conflict, which is captured in our Q4 revenue outlook.”

• Ad impressions: "In Q3, the total number of ad impressions served across our services increased 31%, and the average price per ad decreased 6%. Impression growth was mainly driven by Asia Pacific and Rest of World.”

• China: “We've also seen generally broader based strength from other China advertisers ... I think there has been a broader story of improved growth across all advertiser regions in Q3 and even excluding China advertisers revenue growth has accelerated.”

• Reels: "We also reached a monetization milestone earlier than expected and we estimate that Reels is now net neutral to overall company ad revenue.”

• AI investment: "AI will be our biggest investment area in 2024, both in engineering and compute resources.”

• Threads: "We're 3 months in now ... There are just under 100m MAUs at this point and we're now getting to the point where we're going to be focusing on growing the community further. From what we can tell, people love it so far."

Mastercard (-5.6%): Revenue in-line but earnings beat, US payment volume growth slowed in October and fourth quarter revenue guidance growth was softer-than-expected.

UPS (-5.9%): Revenue and earnings miss, management flagged unfavourable macro-economic conditions negatively impacting global demand as well as weak volume and rising costs, downgraded full-year revenue and margin guidance, lowered buyback.

CENTRAL BANKS

• ECB to hit pause on historic rate-hiking campaign (Bloomberg)

• ECB's Lagarde says fight against inflation not yet over (Bloomberg)

• RBA Governor cautious on inflation, undecided about further hikes (Reuters)

• Yen falls to 33-year low, raising likelihood of BoJ support (FT)

GEOPOLITICS

• Israel bombards Gaza as Putin warns conflict could spread (Reuters)

• Israel loses support and sympathy, fury grows over its strikes on Gaza (Bloomberg)

• EU squabbles over 'pause' in Gaza conflict in bid to supply aid (FT)

• Russia says it rehearsed delivering a massive retaliatory nuclear strike (Reuters)

• Biden to meet China's foreign minister, in further sign of warming relations (Bloomberg)

ECONOMY

• US Q3 GDP growth seen fastest in nearly two years (Reuters)

• China capital outflows hit seven-year high in September (Nikkei)

• South Korea economy grows faster than expected in Q3 (Yonhap)

• BlackRock predicts private debt will double to US$3.5tn by 2028 (Bloomberg)

Charts of the Week

This segment of the morning wrap brings you weekly technical commentary on the ASX 200 and some of the more interesting charts in the market. These are not meant as recommendations and for illustrative purposes only. Past performance is not a reliable indicator of future return. Always do your own research.

ASX 200 – Look out below

ASX 200 daily chart (Source: Commsec)

Last week I said that “the price action is looking more bearish than bullish overall, and a retest of the 6900 support region now looks likely at some point”. That retest has been and gone and instead, the 6900 support region has given way. There isn’t a lot of technical support holding the index up right now, with the 6400 level the next key level. This break lower has been a long time in the making but perhaps the best thing for the shape of the market would be a quick move into 6400, washout of all the negative sentiment, and rebuild rally.

Boss Energy (BOE) – Who’s the Boss?

Boss Energy daily chart (Source: Commsec)

Uranium has been garnering a lot of interest lately, with numerous articles being written on the Livewire platform;

• The fall and rise of uranium

• Does the uranium bull market have more legs to run?

• Why the uranium bulls are finally right

The Boss Energy (BOE) chart looks fantastic from a technical perspective. Big rally since August, supported by jump in average volume. Uptrend support and a clear neckline on the ascending triangle pattern at $5 – also a big round number. From here, look for a break above $5 – that could be a catalyst for a further sharp rally.

Stanmore Resources (SMR) – Steamrolling Stanmore

Stanmore daily chart (Source: Commsec)

For anyone unfamiliar, Stanmore is a metallurgical coal mining company with operations in the Bowen and Surat basins. After bottoming out around $2.50 in July, the share price has rallied strongly towards $4. Volumes have picked up through the rally, highlighting increased interest. Much like BOE above, SMR is approaching a round number in $4 and whether or not the bulls can break through will have a large bearing on what happens next. If they can push through confidently, it could provide a ‘go-with’ move. One to keep an eye on.

Woolworths and Pilbara Minerals Q1 Takeaways

Woolworths (ASX: WOW) reported its September quarter sales update on Wednesday, 25 October. Here are the key takeaways from analysts:

• Overall sales painted a mixed picture

• Shares are down 3.2% since the trading update

• Analysts concerned about NZ Food segment due to competition, economy and rising costs

• Multiple analysts have a more optimistic view on Australian food sales, which broadly topped expectations despite higher volumes being partially offset by moderating food inflation

• After the result, the average price target among analysts was cut by 2.1% to $38.78

• Across 16 sell-side ratings, 44% were Buy, 38% a Hold and 19% a Sell

Woolworths 12-month price chart (Source: Market Index)

Pilbara Minerals (ASX: PLS) posted its September quarter results on Thursday, 26 October and here are the key takeaways:

• Q1 production report showed a significant reduction in realised pricing due to falling lithium prices

• Production and sales were also down, but guidance was left unchanged and a higher H2 is expected

• The stock fell marginally on the update, but multiple analysts believe the market is too focused on short-term lithium prices

• Analysts noted some upside as any improvement in lithium prices would offer significant benefits to PLS given its strong cash balance

• Short term momentum in lithium pricing is against the stock at present but a stabilisation or improvement could see sentiment turn quickly

• Organic growth is on schedule, and analysts are speculating how the company's $2.2bn cash balance might be deployed

• M&A is off the table for now, given the fall in the lithium price

• After the result, the average price target fell 0.6% to $4.60

• Across 18 sell-side ratings, 50% are Buy, 39% Hold and 11% Sell

Pilbara Minerals 12-month price chart (Source: Market Index)

ASX corporate actions occurring today:

• Trading ex-div: None 

• Dividends paid: A2B Australia (A2B) – $0.05, Ridley Corp (RIC) – $0.04, Australian Unity Office Fund (AOF) – $0.01 

• Listing: Newmont (NEM) – 11:00 am, Chariot Corp (CC9) – 12:00 pm 

Economic calendar (AEDT):

• 11:30 am: Australia Producer Price Index

• 11:30 pm: US Personal Consumption Expenditures Index

• 11:30 pm: US Personal Income and Spending