Morning Wrap: S&P 500 hits four-day losing streak, recession woes are back, ASX to fall

ASX Futures (SPI 200) imply the ASX 200 will open 47 points lower, down -0.65%.

Recession fears pushed major US benchmarks lower, JPMorgan CEO Jamie Dimon warns that inflation may push the US economy into contraction, global PMI output index hits a 29-month low and oil prices give back almost all of their year-to-date gains.

Let's dive in.

MARKETS

Major US benchmarks are pulling back with quite a bit of ferocity. Markets have rallied on the Powell Pivot, the evolving disinflation narrative and optimism around China's reopening. Now, we just need to avoid a recession.

• Defensive sectors such as Utilities, often preferred during times of economic uncertainty, outperformed

• Growth pockets of the market underperformed, notably Technology and Discretionary 

• Energy led to the downside as oil prices gave back all their gains from this year. Year-to-date, WTI is -2.1% and Brent crude is +0.9%

• 68% of stocks declined

• 47% of stocks trade below their 200-day moving average (45% on Tuesday, 46% a week ago) 

STOCKS

Bank of America (-4.7%): CEO Brian Moynihan said investment banking revenues fell 55-60% this quarter at a Goldman Sachs conference. He also talked about the consumer, with notable comments including:

• “So the consumers are still spending more money right now than they did last year at this time, and they're spending more money this quarter than they did last quarter, but the rate of growth is slowing."

• “"If you look at 5- and 30-day delinquencies, we're not seeing that move a lot yet. So we have a high-quality credit book. We look at all the portfolios. We worry about them all.” 

Paramount Global (-6.8%): Management said the company expects to post a quarter-on-quarter decline in advertising revenue.

• “... As we look to our international networks, which are impacted by the economy but also by what’s going on in the FX on exchange rate side, we do now see the fourth quarter coming in a bit below the third quarter.” - CEO Robert M Bakish

• “... Advertising is cyclical. I’ve managed through a number of these cycles as recently as through the beginning of the decade. This too is a cycle. This too will turn.” - Bakish 

Meta Platforms (-7.0%): An Oversight Board report found a ‘special moderation’ queue for high-profile public figures which offered ‘certain users greater protection than others’.

• Meta was hit with 32 recommendations including improvements to content moderation for “expression that is important for human rights”

• In parallel, the company’s targeted ad-model faces restrictions in Europe

WORLD NEWS

• Funds with $5tn assets are positioning for soft landing (Bloomberg)

• Business survey shows CEO optimism is deteriorating (Axios)

• Input costs down across the board in US supply chains (FT)

• RBA hikes rates by 25 bps, anticipates further tightening (Bloomberg)

• PepsiCo cuts hundreds of corporate jobs in North America (CNBC)

• Apple mulls shift in iPad production from China to India (CNBC)

• Beijing eases negative test requirements for public venues (Bloomberg, Reuters)

ECONOMY

Global PMI output index hit a 29-month low of 48.0 in November from 49.0 in October.

• Only four out of 21 categories saw an expansion in November

• “The downturn in global economic activity deepened during November. Output fell at the quickest pace in almost two-and-a-half years following a similarly steep drop in new order intakes.” - S&P Global Platts 

• “The level of incoming new business decreased for the fourth month running in November, with the rate of contraction accelerating to a two-and-a-half year record.” - S&P Global Platts 

COMMODITIES

Newcastle coal futures rose 2.1% to US$408.8 a tonne.

Iron ore futures rose 0.3% to US$108.6 a tonne.

Oil benchmarks WTI and Brent crude both fell around -4.0% in overnight trade. Both are trading around breakeven year-to-date, down from highs of more than 70%.

• "The move from OPEC+ was probably driven by the lack of visibility on China and Russia but as the group has warned in the past, should prices fall too far and the market become imbalanced, it won’t wait until the next scheduled meeting to respond. It seems that the only thing guaranteed in the oil market for now is volatility." - Oanda senior market analyst, Craig Erlam

QUICK BITES

• Sectors performance through the business cycle: As the economy slows down, Fidelity notes that staples, healthcare and utilities tend to perform better.

Source: Fidelity

• Retail yet to capitulate: Big money selling was needed to set the low for the 2000 Dot Com bubble and 2008 Global Financial Crisis. Instead, we've seen a record US$2tn in inflows this year into US money market mutual funds and ETFs

The S&P 500 sold off right on cue at the trendline. It's down -3.2% in the last two sessions and so far failing to muster up an intraday bounce.

Our Wraps have talked about the importance of an orderly pullback but so far, it's been rather volatile.

S&P 500 chart (Source: TradingView)

Sectors to watch

Defensives: After a brief risk-on period, the Dow is back to outperforming on a relative basis thanks to its blue-chip and defensive composition. Do we see a similar trend of outperformance among local Utilities and Staples?

Tech: The S&P/ASX 200 Tech Index headlined declines on Tuesday, down -2.04%. As the risk-off attitude gathered momentum on Wall Street, do growth heavy sectors continue to lead to the downside?

Renewables: Growth-heavy green-related ETFs led to the downside on our overnight watchlist. Notably Hydrogen (-4.96%), Solar (-3.43%), Uranium (-2.50%). That said, Rare Earths/Strategic Metals (+0.15%) and Lithium (-0.04%) held up relatively well.

Energy: Oil prices are rolling over as economic concerns outweigh China's potential reopening. Many oil stocks like Woodside have managed to rally even in the face of lower oil prices. As the once correlated performance now widens, who is leading who?

Woodside (blue) versus Brent crude (Orange)

Iron ore: The VanEck Steel ETF was one of few overnight ETFs to close in positive territory, up 1.44%. Iron ore futures were also higher this morning. Could we see heavyweights BHP, Rio Tinto and Fortescue try and swim against the tide on Wednesday?

Stocks going ex-dividend over the next week:

• Wed: Civmec (CVL) 

• Thu: Hitech Group (HIT), Fisher & Paykel (FPH), Select Harvests (SHV) 

• Fri: None

• Mon: None 

• Tue: None

ASX corporate actions occurring today:

• Dividends paid: Red Hill Minerals (RHI), Sunland Group (SDG), Cobram Estate Olives (CBO)

•  Listing: Patriot Battery Metals 

Economic calendar: 

• 8:30 am: Australia services index

• 11:30 am: Australia Q3 GDP

• 2:00 pm: China balance of trade