Morning Wrap: ASX 200 to fall, S&P 500 slides in worst day since August

The S&P 500 marks its worst session since 24 August as tech stocks stagger, the US 10-year yield is easing at another breakout to levels not seen since November 2007, the world's largest chipmaker is asking its suppliers to delay shipments due to slowing demand, gold stocks make a comeback overnight and brace for a big week for central banks and macro data.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 sells off to finish at session lows (Source: TradingView)

MARKETS

• S&P 500 sells off intraday to finish at worst levels last Friday

• Every sector declined, led by weakness across growth and cyclical sectors 

• US 10-year yield up 4 bps to 4.33%, close to August highs of 4.36% which was the highest level since November 2007

• WTI crude settled 0.6% higher, up from session lows of -1.5% and marked its third straight weekly gain

• Bullish focus points for the week: Peak rate expectations heading into Fed decision on Thursday, core inflation making progress towards Fed’s 2% target, positive earnings estimate revision momentum, AI thematic regaining momentum, improved sentiment towards China and positioning tailwinds with highest shorts in nearly six months

• Bearish focus points for the week: Bullish bond yield backdrop with 2-year above 5% and 10-year near 16-year highs, US inflation and PPI came in hotter-than-expected, higher oil price backdrop, profit warnings in the airline sector

• A $4tn 'Triple Witching' event could spur volatility on S&P 500 (Bloomberg)

• Smart money looks at 2024 rate options as hedges on Fed cuts (Bloomberg)

• Strategists continue to raise S&P 500 year-end targets though remain cautious around 2024 outlook (Bloomberg)

• Companies ease off on share buybacks as rising rates push up costs (FT)

• Tech trade showing cracks, higher rates could spell more trouble (Yahoo)

• Small-cap stock takeoff adds US$318bn to emerging markets, MSCI EM small-cap index has advanced almost 15% this year (Bloomberg)

STOCKS

• TSMC tells vendors to delay chip equipment deliveries, cautioned about the outlook for demand (Reuters)

• Salesforce planning to hire 3,300 people after layoffs earlier this year (Bloomberg)

• Disney to cut target for Disney+ streaming subscribers (Bloomberg)

• Adobe shares slipped despite earnings, revenue and guidance topping analyst expectations (CNBC)

CENTRAL BANKS

• Fed likely to shy away from calling rate peak this week (Bloomberg)

• Goldman Sachs says Fed unlikely to raise rates in November(Reuters)

• ECB draws fury from Italy and Portugal on rate-hike backlash, Spain's deputy premier expressed hope that tightening push is now done (Bloomberg)

• Investors eye ECB rate cuts as economy weakens (Reuters)

CHINA

• China economic data signals optimism after stimulus measures (FT)

• China's property sector slumps worsens, clouding recovery prospects (Reuters)

• PBOC injects 191bn yuan medium-term liquidity after RRR cut (Bloomberg)

ECONOMY

• US consumer sentiment slides more-than-expected in September (Reuters)

• US consumer inflation expectations dropped to 3.1% in in September from 3.5% in August, the lowest since March 2021 (Reuters)

• US student-loan restart threatens to pull US$100bn out of consumers (Yahoo)

• China August industrial output, retail sales growth beat expectations (Reuters)

Sectors to Watch

This is why we can't have good things. The overnight pullback somewhat undermines the recent strength we've seen in markets. Let's see if the S&P 500 can stabilise around these levels (or another episode of high volatility and pulling back to August lows). As for sectors to watch on Monday:

Gold: Spot prices advanced 0.7% last Friday to US$1,924 and the VanEck Gold Miners ETF rallied 2.1% to a near 2-month high. For those that like charts, Ramelius Resources (ASX: RMS), Emerald Resources (ASX: EMR) and Gold Road (ASX: GOR) are names that are trying to break out towards June highs.

Ramelius Resources daily chart (Source: TradingView)

Tech: Tech was the worst performing sector on the S&P 500 last Friday. This spells a rather risk-off tone to markets. There were two things I found relatively interesting:

• The world's largest chipmaker TSMC asked supplies to delay shipments due to slowing demand. Last month, it also delayed its new factory in Arizona due to demand-side headwinds. The chipmaker manufactures all the chips for plays like Nvidia, Apple and more.

• Shares in Arm closed 4.5% lower last Friday, down from session highs of 7.9%. Are investors already dumping shares in the high-profile AI name?

Last Minute Rebalancing

The September quarterly rebalance for the ASX 200 needs to be effective prior to the open of trading on Monday, September 18. There were some pretty volatile moves in the closing auction on Friday (this refers to trades placed between 4:00 pm and 4:15 pm).

Below, we'll break down the 6.6% rally for Washington H Soul Pattinson (ASX: SOL).

• At 4:00 pm the stock closed 3.7% higher to $34.78

• By 4:15 pm the stock closed 6.6% higher to $35.82

• Stocks tend to experience most of their daily volumes at the open as well as the closing auction

• The spike at the closing auction suggests funds were rebalancing their weightings for WHSP

Here are a few potential reasons as to why the stock rallied in the closing auction:

• Despite its $12bn market cap, WHSP is a lot less liquid than other large caps. Buying hundreds and thousands worth of stock in one go will likely push the share price up

• Funds might have delayed rebalancing efforts for the stock and had to do it last minute

What can we do with this information?

Stocks that experience such closing auction rallies have the tendency to fall back to the 4:00 pm close price.

ASX corporate actions occurring today:

• Trading ex-div: Supply Network (SNL) – $0.28, Credit Corp (CCP) – $0.47, QUBE Holdings (QUB) – $0.04, Paragon Care (PGC) – $0.006, Cochlear (COH) – $1.75 

• Dividends paid: Computershare (CPU) – $0.40, Tabcorp (TAH) – $0.01, Johns Lyng Group (JLG) – $0.45, Dalrymple Bay Infrastructure (DBI) – $0.05

  • See full list of ASX stocks and ETFs trading ex-dividend and paying dividends here

• Listing: None

Economic calendar (AEST):

No major economic announcements.