Morning Wrap: ASX 200 to rise, S&P 500 scores third straight week of gains

US stocks finished higher last Friday to cement a third straight week of gains, oil prices rebound from a four-month low, UK retail sales unexpectedly fell in October as consumer finances remain stretched, uranium prices continue to mark towards the key US$80 a pound level, lithium stocks bounce sharply overnight and a few interesting tidbits about the recent rally.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 higher, closed at the midpoint of session ranges (Source: TradingView)

MARKETS

• S&P 500 higher, closed at the midpoint of session ranges

• S&P 500 and Nasdaq capped off a third-straight week of gains

• Russell 2000 marked its second-best weekly performance of the year

• All US sectors finished higher last week, led by cyclicals and semiconductors

• Oil prices rally 4.4% but still finished the week down 1.6% 

• Bullish focus points for the week: Easing financial conditions with Goldman Sachs US Financial Conditions Index down ~25 bps in the first four days of last week, disinflation momentum after cooler-than-expected CPI and PPI prints, market repricing for more rate cuts in 2024, no geopolitical-related escalation and more China policy support 

• Bearish focus points for the week: More scrutiny around bad news is good news dynamic, Walmart more cautious on the consumer, another premature dovish pivot

• US bond markets functioning well despite increased volatility (Reuters)

• Small caps have had notable recent strength but companies remains vulnerable to high debt funding costs and risks of a downturn (Bloomberg)

• Eurozone yields hit fresh two-month lows as markets price in 100 bps of rate cuts in 2024 (Reuters)

• Oil falls to lowest since early July, adding pressure on OPEC+ to consider whether to extend output cuts (FT)

STOCKS

• Gap earnings beat outshines bleak holiday-quarter sales forecast (Reuters)

• Amazon has announces strategic partnership with Hyundai to sell cars online in the US at the beginning of 2024 (RetailWeek)

• Intel jumps to 17-month high after Mizuho analyst upgrade (Reuters)

EARNINGS

US earnings season is coming to a close. Here’s how companies have performed:

• Earnings growth rate for Q3 S&P 500 EPS currently sits at 4.3%, well-above the -0.3% expected at the start of earnings season

• Revenue growth rate of 2.4%

• Of the 94% of S&P 500 companies that have reported Q3 earnings, 82% have beaten consensus EPS expectations, above the one-year average of 74% and five-year average of 77%

• 62% of beaten revenue expectations, both below the one-year average of 69% and the five-year average of 68%

CENTRAL BANKS

• Fed's Barr flags hedge funds' risky trading practices (Bloomberg)

• Fed Governor Cook wary of overly severe economic downturn (Bloomberg)

• BoJ's Ueda weighs both sides of weak yen's impact (Bloomberg)

• ECB's Villeroy says slowdown in inflation justifies rate-hike pause (Bloomberg)

• ECB forecast to cut 100 bps in 2024 on weak economic outlook (Bloomberg)

• BoE rate-setters push back against market rate cut bets (Bloomberg)

• BOJ will debate easy-policy exit when inflation nears target (Reuters)

GEOPOLITICS

• Biden says better US-China ties benefits world, acknowledges lingering economic tensions (Bloomberg)

• Xi vows to ease investment barriers for foreign businsesses (Bloomberg)

• EU Commission Chief urges states to begin economic de-risking from China (SCMP)

• Iran told US it did not want Israel-Hamas war to escalate (FT)

• China and Japan reaffirm 'strategic relationship' in rare leader talks (Reuters)

ECONOMY

• UK retail sales unexpectedly decline (Bloomberg)

• US housing starts rise moderately on tight housing supply (Reuters)

• US expected to see record air-travel volumes for this Thanksgiving week (CNBC)

Sectors to Watch

Uranium: Uranium spot prices continued to climb towards the key US$80 overnight. The Global X Uranium ETF rallied 2.1% to mark its highest close since November 2021.

Global X Uranium daily chart (Source: TradingView)

Lithium: VanEck Rare Earth/Strategic Metals ETF bounced 4.0% last Friday after a 4.6% selloff on Thursday. Here are some of the latest developments for lithium:

• China's battery-grade lithium carbonate futures fell for its 21st straight day to fresh two-year lows last Friday

• SQM reported its third-quarter results on Thursday, shares down 8.0%. Management had some pretty grim things to stay about the state of markets

• "We believe this trend (of falling prices) could continue for the reminder of the year. Given the stock levels of battery materials and lithium chemicals, and an additional lithium supply which entered the market during the year, our sales volumes in the fourth quarter 2023 could ultimately be similar or lower than the sales volumes reported during the third quarter 2023."

• China's Li Auto said it will start mass production and delivery of its first EV in February 2024

Energy: Energy was the best performing sector on the S&P 500 last Friday, up 2.1% thanks to a bounce in energy prices. Let's see if this can resonate with local names like Woodside (ASX: WDS) and Karoon Energy (ASX: KAR).

The State of Play

A few interesting tidbits about the recent rally.

• JPMorgan: "We look for momentum to slow further into 2024 as growth slips below trend and the economy walks a fine line between expansion and contraction ... the Federal Reserve to start lowering rates in the second half of 2024 to avoid a recession, with inflation close to, but still above target."

• JPMorgan: "It’s a market where emotion is overriding logic, technicals & fundamentals are completely different languages, where momentum is king, where crowding is your best friend one minute and worst enemy the next, where contrarianism is wrong 20 days in a row then right 20 days in a row. It’s a remarkably tough tape and performance is reflective of 'good calls that go unrewarded' and bad calls 'show you the door.'

• Short covering: Invesco QQQ (ETF that tracks the Nasdaq 100) experienced its biggest inflow in a decade last week as advisors had to cover their short positions.

• Retail isn't buying: In October, retail investors sold off nearly $15.6 billion in stocks, the largest monthly outflow from retail since 2021, according to the latest S&P Global Market Intelligence Data.

• Bank of America: "... Investors currently riding "buy signal" that should last through year-end and possibly carry the S&P 500 higher through to January. Retail data, however, shows many investors have missed the rally since selling at the highest levels back in October."

ASX corporate actions occurring today:

• Trading ex-div: Tamawood (TWD) – $0.16, Silk Laser Australia (SLA) – $0.10

• Dividends paid: Clover Corp (CLV) – $0.007 

• Listing: None

Economic calendar (AEDT):

No major economic announcements.