Morning Wrap: S&P 500 jumps on Powell's pivot, Nasdaq surges, ASX set to hit a 8-month high

US stocks surged after Fed Chair Powell said the pace of rate hikes may moderate as soon as December, the S&P 500 faces a key trendline test, traders returned to beaten up tech stocks, Europe logs its first inflation fall in 17 months and the US revised its third quarter GDP growth to 2.9%.

Heaps to unpack, so let's dive in.

MARKETS

The S&P 500 was trading around -0.2% lower until Powell’s pivot remarks sent the market flying 130 points higher or 3.3%. The Fed Chair said the “time for moderating the pace of rate increases may come as soon as the December meeting,” which is exactly what the market has been hoping for. The speech drove a classic risk-on attitude, with bond yields, the US dollar and the VIX falling, growth-heavy sectors outperforming and commodity prices soaring.   

• Technology topped the leaderboard as investors returned to richly-valued growth stocks. Notable gainers include Block (+9.1%), Meta (+7.9%), Zoom (+6.9%) and Tesla (+7.7%)

• Defensives like Real Estate, Healthcare, Staples and Industrials underperformed on a relative basis

• Energy was the worst performing sector as oil prices slowly recover from the recent China-related selloff 

• 75% of stocks advanced

• 42% of stocks trade below their 200-day moving average (46% on Wednesday, 44% a week ago) 

STOCKS

DoorDash (+8.9%) shares rallied announcing plans to pay off 1,250 corporate employees.

• This is 2022 in a nutshell: xyz tech company shares rally on plans to fire 1,234 employees 

Hewlett Packard Enterprise (+8.1%) earnings beat analyst expectations for the most recent quarter. It also issued a strong Q1 revenue guidance.  

• “Demand over the course of the year was enduring and proved to be better than we anticipated.” - CEO Antonio Fabio Neri

• “As we look ahead for the next fiscal year, after many quarters of supply constrained in our market, we are beginning to see some improvements.”

CrowdStrike (-15.1%) quarterly earnings beat analyst expectations but the cybersecurity provider said new revenue growth was below expectations. It also issued a weaker-than-expected revenue guidance for the December quarter. 

• “Total net new ARR was below our expectations as increased macroeconomic headwinds elongated sales cycles with smaller customers and caused some larger customers to pursue multi-phase subscription start dates, which delays ARR recognition until future quarters.” - CEO George Kurtz 

• “... We saw customers increasingly delay purchasing decisions with average days to close lengthening by approximately 11%.” 

POWELL SPEECH

Powell’s speech deserves its own header. The S&P 500 rallied around 130 points or 3.3% after his speech at the Hutchins Center on Fiscal and Monetary policy.

• “Monetary policy affects the economy and inflation with uncertain lags, and the full effects of our rapid tightening so far are yet to be felt.”

• “Thus, it makes sense to moderate the pace of our rate increases as we approach the level of restraint that will be sufficient to bring inflation down.”

• “The time for moderating the pace of rate increases may come as soon as the December meeting.”

ECONOMY

Eurozone inflation fell to 10.0% year-on-year in November from 10.6% in October. 

• Below analyst expectations of 10.4%

• First decline in 17 months

US private payrolls increased by 127,000 in November, down from 239,000 in October.

• Below analyst expectations of private jobs increasing by 200,000

US third quarter GDP rose 2.9%, up from -0.6% in the second quarter. 

• Above analyst expectations of 2.7%

• Consensus still calls for GDP contraction in the first-half of next year, according to Goldman Sachs

• Atlanta Fed’s GDPNow model estimates Q4 GDP to be 4.3%

COMMODITIES

Iron ore futures rose 1.0% to US$101.15 a tonne. 

• China’s November steel industry PMI fell 4.2 percentage points to 40.1%

• New order subindex fell 8.9 percentage points to 34.5% 

Oil prices rallied on China’s reopening optimism and Powell’s dovish comments. Prices are up 9.6% since Tuesday’s low. 

• “​Energy traders are looking at the next week and see two potential bullish catalysts for oil prices; an OPEC+ decision that could easily justify lower output targets given China’s demand outlook and a Russian crude price cap that needs to be put in place; otherwise, a ban on Russian imports takes effect on December 5th.” - Oanda senior market analyst, Ed Moya

Gold also rallied, locking in its best month since May 2021.

• Powell's dovish remarks sent bond yields and the US dollar meaningfully lower, which typically move in the opposite direction as the yellow metal

QUICK BITES

• Goodbye 5%: The Fed terminal rate has eased to just below 5.0% for March 2023 and cuts are now being priced in from Q3 2023 onwards

Source: Zerohedge

• Decelerating payrolls: Payroll estimates are moderating for a second consecutive month.

Source: Bloomberg

Powell's speech was indeed different this time.

The dovish remarks about 'moderating the pace of rate increases may come as soon as the December meeting' triggered a 'buy everything' kind of event. Traders returned to covid winners, with names like Netflix, Block, Affirm, Meta and Zoom all up at least 6.0%.

Was this speech enough to inspire a big change of character for the market?

The S&P 500 convincingly closed above its 200-day moving average and now rallying into a key trendline.

S&P 500 chart (Source: TradingView)

SPI futures suggest the ASX 200 opens +0.73% higher, meaning a push right through the 7,300 level.

At least at the index level, the ASX 200 has been on a V-shaped rally. So for like many investors, you're probably thinking 'do I want to chase this'.

The problem with such powerful overnight news is that the local market likely gaps up at the open. So let's see if the buying continues after the morning bell or do stocks just chop around after the surge?

XJO chart (Source: TradingView)

Sectors to watch

Copper: A major China-inspired pullback to its previous trading range. Now its seeing a V-shaped rebound thanks to Powell's comments. The Global X Copper Miners ETF rips to a seven month high.

Copper futures (Source: TradingView)

Global X Copper Miners ETF (Source: TradingView)

Gold: Are the shackles off for gold now that the Fed has acknowledged a pivot? The speech, lower bond yields and lower US dollar could see some more positive flows for local gold names.

Lithium/Uranium: The risk-on attitude drove strong gains for overnight ETFs, notably the Global X Rare Earths and Uranium ETF, up 6.6% and 5.1% respectively. Still, these ETFs have remained rangebound and trendless, even after the strong overnight move.

Tech: The ASX 200 Tech Index was already teasing at a breakout, closing at a two month high on Wednesday. The big risk-on session on Wall Street could see more positive gains for local tech names. Especially after Block shares closed 9.1% higher.

XIJ chart (Source: TradingView)

Stocks going ex-dividend over the next week:

• Thu: Technology One (TNE), Pendal Group (PDL) 

• Fri: None

• Mon: Incitec Pivot (IPL) 

• Tue: None 

• Wed: Civmec (SVL) 

ASX corporate actions occurring today:

• Dividends paid: Dicker Data (DDR), New Energy Solar (NEW)

•  Listing: Tourism Holdings Rentals (THL)

Other things of interest (AEDT):

• 8:30 am: Australia manufacturing index

• 9:00 pm: Eurozone unemployment rate

• 11:00 pm: Brazil Q3 GDP growth

• 12:30 am: US personal spending and income