Morning Wrap: S&P 500 and Nasdaq surge thanks to strong bank earnings, ASX set to jump

ASX Futures (SPI 200) imply the ASX 200 will open 61 points higher, up 0.9%.

Major US indices rose sharply thanks to better-than-expected earnings from Bank of America and a rebound for oversold tech names, China delays its Q3 GDP data without giving any reasons, Morgan Stanley thinks the market could bounce as much as 16% and a few key ASX sectors to watch this morning.

Let's get into it.

MARKETS

US markets rallied thanks to sold quarterly earnings from Bank of America and Roblox. Several oversold tech companies like Block, Tesla and Zoom also bounced strongly.

The S&P 500 is up for only the fifth time in the last 20 days but guess what? The smallest daily gain among those green days is 1.97%. Some of the markets biggest rallies occur during bear markets and given how volatile things are, brace yourself for more dips and rips.

• All 11 US sectors were green

• Discretionary, Real Estate, Communication Services and Tech sectors rallied more than 3%

• Healthcare, Energy and Staples underperformed benchmarks 

• 78% of US stocks advanced 

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

STOCKS

• Netflix (+6.6%) Wells Fargo reiterated an Equal-weight rating ahead of the company’s earnings next week. Last week, Netflix announced it’ll release its new ad-supported service a month ahead of schedule

• Apple (+2.9%) Morgan Stanley reiterated an Overweight rating. The investment bank said the company will weather the storm better than other technology peers thanks to its loyal user base

EARNINGS

• Roblox (+19.8%) posted a September 2022 metrics report, with daily average users up 23% year-on-year to 57.8m. Estimated revenue was between US$171-180m, which represents a change of -2% to +3%

  • “The strengthening of the US dollar against the Euro, British Pound and other foreign currencies during 2022 has had an adverse impact on booking,” the company notes.

  • The fluctuations led to an approximate -6% impact on YoY growth rates in September  

• Bank of America (+6.1%) reported better-than-expected earnings. Third quarter profit fell -8% to US$7.1bn but net income rose 24% to US$13.9bn thanks to higher rates and expanding loans

  • CEO Brian Moynihan: "First, consumers continue to spend at strong levels. Second, customer average deposit levels for September 2022 remain at multiples of the pre-pandemic levels. You can see that in the lower right. Third, there's plenty of capacity for borrowing.”

  • "... early or late-stage card delinquencies...all remain well below our pre-pandemic levels. These are decades-old lows & we're just now seeing gradual moves off these lows in early-stage delinquencies. Late-stage delinquencies are still 40% below pre-pandemic levels.”

WORLD NEWS 

• China delays Q3 GDP data without giving any reason (Bloomberg)

• UK bonds surge as Chancellor Hunt reverses Truss tax cuts (Bloomberg)

ECONOMY

• US NY empire state manufacturing index tumbled to -9.1 in October from -1.5 in September

  • Business activity in New York State declined for a third straight month

  • “New orders, unfilled orders, and shipments were all little changed from last month,” the report said

  • “Labor market indicators pointed to a small increase in employment and the average workweek.”

  • “Input price increases picked up, while the pace of selling price increases held steady.”

COMMODITIES

• Iron ore futures rose 0.2% to US$94.8 a tonne

  •  China’s steel prices eased in over 10-14 October 

  • “Market sentiment weakened with steel demand waning during the survey period, partly due to the resurgence of covid cases across the country,” Mysteel Global noted 

• Oil prices traded flat, down from session highs of 1.7%

  •  “It’s been another turbulent few weeks in oil markets from global growth concerns to super-sized OPEC+ output cuts and it seems they’re yet to fully settle down,” said Oanda senior market analyst, Ed Moya

  • “Whether that will satisfy the oil alliance only time will tell but there will be some relief that it’s not back in triple figures already, even if that is a result of the ever-worsening economic outlook.”

• Gold inched higher but well off session highs

  • “Lower global yields and a slightly softer dollar are probably behind the move, with traders no doubt hoping that peak inflation and rate pricing are nearly in sight,” said Moya

Other commodities of interest (US$):

• Platinum +1.3% to $912/oz

• Uranium futures +0.9% to $50.1/lb

• Palladium +0.1% to $1,991.5/oz

• Newcastle coal futures -0.5% to $395/t

• Copper -0.6% to $3.4/lb

• Aluminium -2% to $2,237/t

• Natural gas -6.1% to $6.3/MMbtu

QUICK BITES

• Morgan Stanley on markets: If rates fall ahead of a decline in inflation (which we expect), “it will give legs to the rally that began last Thursday .. We think 4000 is as good a guess as any and would not rule out another attempt to re-take the 200-day moving average (~4150).”

• And another one: "We're starting to get to the point where our medium-term view is more constructive ... We don't think this is the 1970s ... Yes, the earnings recession ... and probably economic recession will play through, ... but the room is getting crowded."

• How much of a typical bear market is priced in: "At a drawdown of 28%, the stock market has now priced in 85% of a typical bear market (-33%), and 78% of a recession (-35%)," said Jurrien Timmer, Director of Global Macro at Fidelity

• A 1940s comparison: "Despite big differences, the 1940’s continue to provide a compelling analog to today. The fiscal/monetary cocktail in 1942-46 turned into an inflationary hangover in 1946-47, much like is happening today,' said Timmer

Source: Fidelity

• A glance at the biggest rallies: These are the 4 biggest rallies for the S&P 500

  • 30 Oct 1929 +12.5%

  • 6 Oct 1931 +12.3%

  • 13 Oct 2008 +11.5%

  • 28 Oct 2008 +10.7%

• China on energy security: "Based on China’s energy and resource endowments, we will advance initiatives to reach peak carbon emissions in a well-planned and phased way, in line with the principle of getting the new before discarding the old." In short: Coal now, Renewables later.

You begin to feel bearish so of course, the market rips.

After a day or two of green, you begin to feel bullish and think 'hey maybe its all over and I can start bu ..." and the market dips. Volatility is unprecedented due to a long list of well documented reasons. From the Quick Bites above, you can see that a lot has already been priced in and the market is indeed in a rather oversold state. There's also been a record amount of institutional and retail short/put exposure, which can exacerbate any moves to the upside.

That's my spiel for the morning. SPI futures imply a 0.9% open. The problem with a strong lead from Wall Street is that our market tends to gap up too much at the open. Volatility remains unprecedented, so let's see how we close. I'll see you guys later in the Evening Wrap.

Sectors to watch

Overnight ETF gainers: Cloud (+5.2%), Uranium (+5.01%), Rare Earth/Strategic Metals (+4.2%), Steel (+2.8%)

Overnight ETF losers: Nickel (-3.17%), Aluminium (-2.67%)

Iron ore: US-listed BHP (ASX: BHP) rallied 3.1% so expect a strong start for local iron ore names.

Tech: The Nasdaq led the rally, with a lot of big household names up at least 6%. We saw a lot of local names like WiseTech (ASX: WTC) and Altium (ASX: ALU) put up a good fight yesterday, down less than 1%.

Uranium: The Global X Uranium ETF rallied 5.01% overnight. Although its chart is not the prettiest (volatile price action, below the 200-day, was trading at a 3 month low). Much like the tech narrative above, local uranium names also refused to succumb to broader market weakness. Boss Energy (ASX: BOE) closed higher after falling -4.3% on Monday.

Source: TradingView

Lithium: Chinese lithium carbonate prices hit an all-time high 537,500 yuan, up almost 100% year-to-date. Performance among local lithium stocks remains choppy and sometimes they don't move in unison. Take note of whats over/underperforming.

Stocks going ex-dividend:

• Tue: KSC

• Wed: None

• Thu: None

• Fri: SNC

• Mon: NHC

ASX corporate actions occurring today:

• Dividends paid: QUB

• Listing: None

Other things of interest (AEDT):

• 11:30 am: RBA minutes

• 8:00 pm: Germany ZEW economic sentiment