Market Wraps

Morning Wrap: ASX 200 to fall, US stocks ease + 2 stocks targeting massive capital returns

Mon 22 May 23, 8:32am (AEST)

ASX 200 futures are trading 11 points lower, down -0.15% as of 8:20 am AEDT.

S&P 500 pulls back on Friday but finishes the week up 1.65%, Powell signals a pause amid tighter financial conditions, valuations for megacap US tech stocks surge amid AI craze, German producer prices unexpectedly rise in April and a closer look at two capital return events from PointsBet and A2B, which yield a one off as much as 30-80%.

Let's dive in.

Overnight Summary

Mon 22 May 23, 8:32am (AEDT)

Name Value Chg %
Major Indices
S&P 500 4,198 +0.94%
Dow Jones 33,536 +0.34%
NASDAQ Comp 12,689 +1.51%
Russell 2000 1,774 -0.62%
Country Indices
Canada 20,297 +0.00%
China 3,297 +0.40%
Germany 16,163 +1.33%
Hong Kong 19,451 -1.40%
India 61,432 -0.21%
Japan 30,808 +0.77%
United Kingdom 7,742 +0.25%
Name Value Chg %
Commodities (USD)
Gold 1,979.90 +1.03%
Iron Ore 107.10 -
Copper 3.728 +1.04%
WTI Oil 71.67 -0.26%
Currency
AUD/USD 0.6650 +0.02%
Cryptocurrency
Bitcoin (AUD) 40,530 -1.94%
Ethereum (AUD) 2,726 -0.88%
Miscellaneous
US 10 Yr T-bond 3.692 +3.10%
VIX 16 -4.86%

US Sectors

Mon 22 May 23, 8:32am (AEDT)

Sector Chg %
Information Technology +2.06%
Communication Services +1.79%
Consumer Discretionary +1.54%
Financials +0.70%
Industrials +0.67%
Materials +0.55%
Energy +0.49%
Health Care -0.24%
Utilities -0.36%
Consumer Staples -0.44%
Real Estate -0.68%

S&P 500 SESSION CHART

S&P 500 intraday
S&P 500 finishes lower, eases from intraday highs (Source: TradingView)

MARKETS

  • S&P 500 eases from Thursday's year-to-date high but still up 1.65% last week

  • Powell said tighter financial conditions may mean little upside to interest rate path but reiterated commitment to inflation target 

  • Cash at money market funds hits fresh record highs (Bloomberg)

  • Yields rise as bond traders lose faith in likelihood of rate cuts(Bloomberg)

  • Hedge funds raise ultra-bearish bets on oil, flags US recession angst (Bloomberg)

  • BofA strategist says sell US stocks as tech and AI bubble forming (Bloomberg)

  • Apple, Microsoft, Google, Amazon, Nvidia, Meta and Tesla are up 61% year-to-date and trading at PEs of 30 vs. 17 for the rest of the S&P 500

  • Fed officials split over pause or hike in June (Bloomberg)

  • European natural gas futures fall below €30 for the first time since Jun-21 (Bloomberg)

STOCKS

  • Morgan Stanley chief James Gorman to step down within a year (FT)

  • Foot Locker posts double miss, shares dip 27% (CNBC)

  • Deere raise full-year profit outlook on healthy equipment demand (Reuters)

  • Occidental Petroleum rallied after Buffett’s Berkshire boosted its stake to 24.4% (CNBC)

Earnings

The blended earnings growth rate for first quarter S&P 500 EPS currently sits at -2.2% compared to the -6.7% expected at the beginning of earnings season. Of the 95% of S&P 500 companies that have posted earnings, 78% have beaten earnings expectations, above the 73% one-year average and 77% five-year average. 

ECONOMY

  • German producer prices post first monthly increase since Sep 2022 (Reuters)

  • UK GfK survey shows consumer confidence still on the rise (London Times)

  • White House official says "steady progress" in being made in US debt ceiling talks (Reuters)

Industry ETFs

Mon 22 May 23, 8:32am (AEDT)

Description Last Chg %
Commodities
Aluminum 47.675 +1.60%
Uranium 20.06 +0.20%
Steel 59.15 +0.08%
Strategic Metals 85.24 -0.15%
Lithium & Battery Tech 62.96 -0.21%
Silver 21.56 -1.19%
Gold 181.84 -1.30%
Copper Miners 37.01 -1.70%
Nickel 27.834 -2.45%
Industrials
Global Jets 18.66 +0.27%
Aerospace & Defense 113.33 +0.26%
Healthcare
Cannabis 8.43 +0.84%
Biotechnology 128.97 -0.28%
Description Last Chg %
Cryptocurrency
Bitcoin 15.46 -2.46%
Renewables
CleanTech 14.55 -0.41%
Solar 70.77 -1.24%
Hydrogen 9.1 -1.73%
Technology
Semiconductor 445.03 +3.16%
Robotics & AI 26.43 +2.05%
Cloud Computing 17.61 +1.97%
FinTech 20.82 +1.08%
Cybersecurity 22.85 +1.06%
Electric Vehicles 23.42 +0.99%
Video Games/eSports 53.07 +0.72%
Sports Betting/Gaming 17.27 +0.52%
E-commerce 17.26 -0.17%

Deeper Dive: Capital Returns

When a company sells their assets, it can opt to return proceeds back to shareholders. This is often the case when it has nothing better to do with all the surplus cash. A capital return can be fascinating for many reasons:

  • Did the stock fluctuate on the asset sale/capital return announcement?

  • What did the yield look like when the stock rallied/sold off?

  • What does the business look like post sale?

In today's Deeper Dive, we'll take a closer look at two companies that are selling their assets, with plans to return proceeds back to shareholders.

Last Monday, PointsBet (ASX: PBH) announced plans to sell its US business for US$150 million (A$222 million). Shareholders will vote on the proposed transaction at a shareholder meeting in June but the plan is to return net sale proceeds back to shareholders.

The Board estimates this distribution of capital to be approximately $1.07 to $1.10 per share. Here are a few interesting observations about the asset sale:

  • Since its listing in June 2019, PointsBet has raised over $1.2 billion and spend $600 million on marketing in the US

  • PointsBet shares fell as much as 30% in the two days after the announcement

  • The stock hit a low of $1.28 on Tuesday, 16 May

  • The low point would reflect a yield of 85% ($1.085 divided by $1.280)

  • The stock closed at $1.545 on Friday or a 20% bounce from Tuesday lows

A2B (ASX: A2B) is probably best known for operating the 13CABS business. It recently sold its property on O'Riordan Street in Sydney for $78 million. Net proceeds, after costs and repayment of debt, are expected to be approximately $73 million and the board plans to return those proceeds as a fully franked dividend 'by the end of 2023'.

  • Given it's current market cap of $183 million, this implies a payout yield of approximately 40%

  • The company has been unprofitable between FY19 to FY22

  • The half-year FY23 reflected a turnaround for earnings, with net profits coming in at $3.7 million compared to a $6.7 million loss in the previous period

Key Events

ASX corporate actions occurring today:

  • Trading ex-div: EZZ Life Science (EZZ) – $0.01 

  • Dividends paid: None

  • Listing: Light & Wonder (LNW)

Economic calendar (AEST):

No major economic announcements.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

Get the latest news and insights direct to your inbox

Subscribe free