Morning Wrap: Bear market taking shape, Wall Street plunges, ASX set to slide

It’s been a good run. I’ll see you guys on the other side. Panic set in across Wall Street as major indices booked their worst daily declines since 2020, investors are concerned that an overly dovish Fed might fall behind the curve, China’s services PMI is in free fall and the US job market is beginning to show some cracks.

Let’s dive in.

Stocks

• Wall Street has pulled a 180 after rallying yesterday on news that the Fed was not actively considering a 75 bps rate hike

• Now, markets are concerned that the Fed was too dovish on its near-term interest rate outlook and might fall behind the curve

• All 11 US sectors were red

• Utilities, energy, staples and healthcare staged smaller declines

• Discretionary and tech stocks fell the most

• 82% of US stocks declined

• 70% of US stocks trade below their 200-day moving average (66% on Thursday, 67% a week ago)

• So far, 78% of S&P 500 companies have reported March quarter earnings

  • 79% have beat earnings expectations

  • Earnings growth expectations for the quarter have moved up 10% year-on-year

• Shopify (-14.9%) reported a loss per share of -US$11.70 in the first quarter compared to US$9.94 a year ago. The eCommerce platform said the company is no longer benefiting from pandemic-related drivers

• Doordash (-10.4% but +8.7% after hours) first quarter revenue topped analyst estimates on a record 400m orders. Though, losses were larger-than-expected, sitting at -US$159m compared to a -US$110m loss a year ago 

• Block (-10.5% but +10.3% after hours) shares are rallying after hours despite missing both top and bottom line earnings expectations 

• US corporate earnings to watch this week: 

  • Fri: Draftkings, Under Armour 

Economy

• US jobless claims rose 19,000 last week to 200,000

  • Largest weekly rise in claims since last July

  • Economists polled by The Wall Street Journal forecasted new claims to rise to 182,000

• US worker productivity fell to 7.5% in the first quarter, the largest decline since 1947

  • Ongoing supply shortages and covid weighed

• China’s Caixin services PMI fell at its second-steepest pace on record in April to 36.2

  • The index hit 26.5 in February 2020

  • China’s lockdown has disrupted all aspects of demand and supply, supply chains, market confidence and employment

• The Bank of England raised interest rates for the fourth straight time since December, bringing cash rates to 1.00% - the highest since 2009

Commodities

• Iron ore futures rose 1.7% to US$145.2 a tonne. Prices rose sightly amid improved sentiment due to the restart of industrial activities in Shanghai, according to Fastmarkets

• Oil was green but well-off session highs of US$111.3 a barrel. EU outlined its plans on phasing out Russian oil and the latest EIA report flagged historically low strategic petroleum reserves

• Gold briefly spiked 1.5% to session highs of US$1,909 before fading back to the US$1,870 level

Major US indices were previously on a three-day win streak, giving investors the impression that last Friday’s selloff marked the low and perhaps that the bottom was in.

Today serves as another reminder that this is exactly what a bear market looks like. Some of the largest rallies come from bear markets. And Thursday was a prime example of the market rallying off extreme levels of pessimism.

These big bounce back rallies tend to bait investors back into a false sense of security and push individual stocks back to key or attractive price points.

That's just my 2 cents this morning.

On the ETF front, everything was smashed (obviously). There's honestly not that much to talk about as pretty much everything closed around intraday lows.

US-listed BHP and Rio Tinto fell between 4-5%. So its all up to the banks to try and keep things together.

ASX corporate actions occurring today:

• Ex-dividend: None today

• Dividends paid: ECF, OMH, PCI, SEC, SVW, TCF

• Listing: C79

• Issued shares: ARF, B4P, BBC, BCA, BGL, BNR, C79, CHK, CRR, CU6, DHG, E2M, EAI, ECT, GT1, GTI, JAV, LAW, LPD, MDR, MFG, MGU, NRZ, ONE, OOK, PET, PIL, PTR, RGL, RMD, SEQ, SLM, SQ2, SSR, TON, TOR, WBT

Other things of interest (AEST):

• US Non-Farm Payrolls (April) at 10:30 pm

• US Unemployment Rate (April) at 10:30 pm