Morning Wrap: Nasdaq jumps on Alphabet layoffs, recession odds fall sharply, ASX set to rise

The S&P 500 rallied but failed to recoup earlier decline, the Nasdaq powered ahead after Google-parent Alphabet's layoff announcement, Fed policymakers Harker and Waller both prefer a 25 basis point increase and a look at how unprofitable tech companies performed post dot com bubble.

Let's dive in.

MARKETS

• Major US benchmarks rallied amid growing expectations for another downshift in Fed tightening and Google-parent Alphabet's plans to cut its global workforce by more than 6%

• The rally was not enough to recoup earlier declines, with the S&P 500 finishing last week down -0.66% but up nearly 4.2% year-to-date

• Approximately 11% of the S&P 500 has reported their Q4 earnings. The blended earnings decline for the quarter is -4.6%, below the -3.2% expected, according to StreetAccount

• US 10-year bond yield rose 9 basis points to 3.48% but down from 3.5% in the previous week

• Crude oil prices rose around 1.0% to a two month high as China kicks off its Lunar New Year celebrations

• 71% of stocks advanced

• 49% of stocks trade below their 200-day moving average (53% on Wednesday, 51% a week ago) 

STOCKS

Coinbase (+11.6%) was Neutral rated by JPMorgan. The investment bank called it a potential “beneficiary of the challenges that have faced other brokers/exchanges in the aftermath of the collapse and bankruptcy of FTX.”

Netflix (+8.5%) shares rallied after adding 7.66m subscribers in the December quarter, beating the 4.57m expected. The stock is now up 100% from its recent lows but still down 50% from all-time highs.

Alphabet (+5.3%) announced plans to fire 12,000 employees and undergo a rigorous review of product priorities.

• “Over the past two years, we’ve seen periods of dramatic growth. To match and fuel that growth, we hired for a different economic reality than one we face today.” - CEO Sundar Pichai

WORLD NEWS

• Markets continue to bet Fed will reverse its tightening (FT)

• Banks gearing up for biggest round of job cuts since global financial crisis (FT)

• ECB's Knot says bank set to hike by 50 bp in both February and March (Reuters)

• China's top epidemiologist says 80% of population has already been infected (FT)

• JPMorgan model shows implied odds of recession below 50%, down from nearly 100% in October (Bloomberg)

ECONOMY

Germany’s producer prices rose -0.4% month-on-month in December which was below analyst expectations of a -1.2% decline. Producer prices remain 21.6% higher than where they were a year ago. 

Source: TradingEconomics

UK’s retail sales fell -1.0% month-on-month in December, below analyst expectations of a 0.5% increase. Sales volumes were also down -5.8% compared to a year ago, the largest decline since 1997. 

Source: TradingEconomics

Three central bank speeches took place overnight. Key highlights include:

• European Central Bank President Christine Lagarde: “Economic news have become much more positive … We may only see a small contraction in the Eurozone … Will stay course with rate hikes … Inflation expectations are not de-anchoring.”

• Philadelphia Fed President Patrick Harker: "I expect that we will raise rates a few more times this year, though, to my mind, the days of us raising them 75 basis points at a time have surely passed … Hikes of 25 basis points will be appropriate going forward.” 

• Fed Governor Christopher Waller: “And in keeping with this logic and based on the data in hand at this moment, there appears to be little turbulence ahead, so I currently favour a 25-basis point increase at the FOMC’s next meeting at the end of this month.”

QUICK BITES

Unprofitable companies: The dot com bubble gives us a good idea of what to expect with unprofitable tech companies. The chart shows us that improving returns to shareholders will matter more going forward.

Last year, I wrote an explainer for our ETF table. You can check it out here.

I’m back! I stepped away from the screens for a two week roadtrip around South Australia and of course the market makes a V-shaped move, up 4.8%. I couldn't help but notice these mountains on the drive back.

The Morning Wrap will see a few changes moving forward as Chris, Hans and I embark on creating the best possible pre-market read in Australia. I will update you guys on any upcoming changes or decisions, as they come. I'd also love to hear from you guys as to how the Wraps went while I was gone. What did you enjoy, what was different etc.

Anyway. Back to the market talk.

The S&P 500 is back at this longstanding trendline. Will this time be any different?

S&P 500 weekly chart (Source: TradingView)

The ASX 200 has fared much better thanks to the outperformance of heavyweight iron ore miners and banks. With the market up 11 of the last 13 sessions or 7.3%, its rather extended. Will we begin to see some stalling or will it continue to grind higher?

It would be healthy to see a little bit of a pullback, which would then also show us the underlying strength of the market. As we've seen with previous rallies, the pullback tends to be anything but healthy. Has the market undergone a true change of character or will this time be the same as the others?

Source: TradingView

Sectors to watch

Coal: Newcastle coal futures fell -3.5% to US$350.95 a tonne last Friday. US-listed coal names held up relatively well, with names like Consol Energy closing up 2.7%. Many ASX-listed coal miners moved out strongly last Friday. Notably names like Whitehaven, Yancoal and Terracom.

Tech: The Nasdaq rallied 2.66% last Friday led by names like Affirm (+16.7%), Coinbase (+11.6%), Block (+7.4%), Tesla (+4.9%). Could this see some more positive flow for beaten up names like BNPL stocks, Kogan, PointsBet etc.

Lithium: VanEck Rare Earths/Strategic Metals ETF rallied 3.27% last Friday. It's next test will be the key 200-day moving average (blue).

VanEck Rare Earth/Strategic Metals ETF (Source: TradingView)

Uranium: Global X Uranium ETF rallied 2.86% last Friday to a four month high. Uranium was a rather choppy and trendless trade in 2022. It's started the year off pretty strong, pushing above the 200-day moving average. Will this be the year for uranium/nuclear energy?

ASX corporate actions occurring today:

• Trading ex-div: None

• Dividends paid: None

• Listing: None

Economic calendar:

• 10:50 am: Bank of Japan meeting minutes