Morning Wrap: Nasdaq up almost 10% in 2023, US-listed BNPL stocks extend gains, ASX to rise

Major US benchmarks continue to climb ahead of a busy earnings week, investors continue to rotate into growth and tech names, US earnings season has so far been softer-than-expected and is the BNPL rebound set to continue?

Let's dive in.

MARKETS

• The S&P 500 faded from session highs of 1.68% – there may be some technical factors in play as it hovers around closely watched 200-day moving average

• Bullish factors bolstering the market include: Slowdown in the pace of Fed tightening, disinflation momentum, a faster China reopening and a rise in soft-landing expectations

• Growth and tech continue to outperform, with names such as Tesla, Netflix, Meta and Apple up between 2-6%

• Cost-cutting and layoff announcements seem to be generating further buying interest in these growth names

• Q4 earnings season appears to be fairly lackluster, with S&P 500 earnings expected to fall -4.6%, according to FactSet

• Only 67% of results have surpassed consensus expectations, below the five-year average of 77%, according to FactSet

• 60% of stocks advanced overnight

• 35% trade below their 200-day moving average 

STOCKS

Qualcomm (+6.3%) was among several semiconductor companies that received an upgrade from Barclays. The investment bank expects to see a recovery in PC sales in the second half of 2023. 

Salesforce (+3.0%) shares rallied after activist investor Elliot Management built a multi-billion dollar stake in the company. 

Apple (+2.1%) continues to rally on expectations that a China reopening will help recover iPhone sales. Morgan Stanley said the stock is a top pick and views the reopening as having ‘important implications’ for both demand and supply.

Spotify (+2.0%) plans to lay off 6% of its global workforce of about 600 employees. 

• “To offer some perspective on why we are making this decision, in 2022, the growth of Spotify’s OPEX outpaced our revenue growth by 2 times.” - CEO Daniel Ek 

ECONOMY

Eurozone consumer confidence improved to -20.9 in January from -22.2 last December. It’s also the highest since February 2022 on hopes of lower energy prices.

Source: TradingEconomics

European Central Bank President Lagarde continued her hawkish rhetoric, highlights include:

• "We have made it clear that ECB interest rates will still have to rise significantly at a steady pace to reach levels that are sufficiently restrictive, and stay at those levels for as long as necessary."

• "In other words, we will stay the course to ensure the timely return of inflation to our target."

QUICK BITES

Tech strength: The Nasdaq is up around 9.6% year-to-date. So what happens when the Nasdaq is up in each of the first three weeks of the year?

Falling recession odds: The likelihood of a recession is falling for the first time in over a year. Still, the Leading Economic Index (LEI) is in its 10th consecutive month of decline, which would be a record without a recession. Has the LEI got it wrong this time or is GDP contraction still on the horizon?

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

Major US benchmarks are showing some signs of a 'change of character' as the S&P 500 flirts around the 200-day moving average.

We're also seeing an improved strength among individual stocks, with 66% of S&P 500 rallying back above their 200-day moving averages, up from 50% earlier this year.

As for the ASX 200, it continues to grind higher and believe it or not, around 2.3% away from all-time highs. The market continues to defy the idea of a pullback. But the question remains, in the event of one, will we see buying support or do things fall apart like previous rallies?

The Morning Wrap is going through a review of its own as we figure out how to better optimise its sections. The first thing we're thinking about is the below 'Sectors to watch' segment. I want to ask something a bit radical - How would you feel if we removed it entirely (with no replacement).

Ok maybe that was a little too intense, but seriously, has it been useful? Accurate? Let me know at [email protected].

Sectors to watch

BNPL: Monday was a crazy day for BNPL names, with Zip and Sezzle up 22.8% and 38.9% respectively. Overnight, US-listed BNPL names like Affirm and Block continued to rally, up 7-8%. Does this mark another day of soaring optimism for the beleaguered sector?

Tech: By extension of the above, we also saw the Nasdaq continue to grind higher, up around 2%. It closed towards session highs unlike the S&P 500. Our ETF list shows several sub-sectors such as Semis, Bitcoin, Cloud, eCommerce and FinTech up more than 2%. Some local heavyweights like Wisetech, Xero, Block and Altium could see some positive flow.

Lithium: The VanEck Rare Earths/Strategic Metals ETF rallied through the 200-day moving average. Do we continue to see a recovery in the lithium space? Its also worth pondering on whether or not a recovery will be even across all names. For example, will established producers like Pilbara Minerals and Allkem lead while explorers lag?

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

Key events 

ASX corporate actions occurring today:

• Trading ex-div: None 

• Dividends paid: Eildon Capital (EDC) 

• Listing: High-Tech Metals (HTM)

Economic calendar:

• 9:00 am: Australia manufacturing and services PMI

• 6:00 pm: Germany consumer confidence