Morning Wrap: S&P 500 logs worst year since 2008, Tesla sales miss, ASX set to bounce

Welcome back to what will no doubt be another wild year for equity markets. The S&P 500 logged its worst calendar year since 2008, Energy was the only sector that finished the year in positive territory, Tesla's December quarter vehicle deliveries missed analyst expectations, Spanish headline inflation eases but core prices continue to accelerate and iron ore rallied 5.0% in the past week to US$116 a tonne.

Let's dive in.

MARKETS

The S&P 500 finished the year down -19.4% – logging its worst calendar year since 2008 and fourth worst year since 1950. By sector, Energy was the only positive sector, up an outsized 59.0%. This was followed by the relative outperformance of defensive sectors like Utilities (-1.4%), Staples (-3.2%) and Healthcare (-3.6%).

Over the past year, the US 2-year and 10-year Treasury yields rallied 369 bps and 237 bps to 4.42% and 3.88% respectively. Anyway, back to the usual day-to-day stuff:

• Energy was the only green sector after oil prices snapped a three-day losing streak

• Yield-sensitive sectors such as Real Estate and Utilities led to the downside amid a bounce in bond yields 

• 51% of stocks declined

• 52% of stocks trade below their 200-day moving average (51% last Thursday, 51% a week ago) 

STOCKS

Tesla (+1.1%) delivered 405,278 vehicles in the December quarter, which was below analyst expectations of ~427,000. Production levels outpaced deliveries by 8.5% in the fourth quarter, a potential warning that the issue isn't production but the lack of demand.

• "In the fourth quarter, we produced over 439,000 vehicles and delivered over 405,000 vehicles. In 2022, vehicle deliveries grew 40% year-on-year to 1.31 million while production grew 47% year-on-year to 1.37 million."

Southwest Airlines (+0.9%) shares fell -12.2% between 21-28 December after cancelling approximately 60% of its schedule due to severe winter weather and tech issues.

• "The tools we use to recover from disruption and serve us well 99% of the time, but clearly, we need to double down on our already existing plans to upgrade systems for these extreme circumstances so that we never again face what's happening right now." - CEO Bob Jordan

General Electric (+0.1%) plans to spin off its healthcare business, which will join the S&P 500 when it begins trading on January 4, 2023. 

WORLD NEWS

• Spanish CPI slows but core CPI still climbing (Bloomberg)

• China manufacturing activity forecast to shrink further (Reuters)

• China flags "appropriate" fiscal spending to boost growth (Bloomberg)

• M&A activity falls sharply in H2 (FT)

ECONOMY

Spanish inflation slowed to 5.8% in December from 6.8% in the previous month.

• Beat economist expectations of a fall to 6.4% 

• Core inflation accelerated to 6.9% in December from 6.3% in the previous month and the highest since 2003

China’s manufacturing PMI fell to 47.0 in December from 48.0 in the previous month.

• Below analyst expectations of 48.0

• The largest decline since the initial pandemic back in February 2020

China’s non-manufacturing PMI tumbled to 41.6 in December from 46.7 in the previous month.

• Below analyst expectations of a rise to 48.4

COMMODITIES

Iron ore rose 5.0% in the past week to US$116.20 a tonne. Below are a few key highlights from the Shanghai Metal Market’s outlook for Chinese steel supply and demand:

• PMIs of major economies: “... showed a downward trend since entering 2022. The current global economy is facing multiple challenges.”

• China & COVID: “... the number of infections in China will increase significantly in the next six months, which may have a negative impact on the domestic economy.”

• More stimulus: “... in 2023, general infrastructure investment is expected to progress at a relatively rapid speed … At present, many provinces and cities, including Hunan, Jiangxi and Hebei, have issued local special bond plans for 2023.” 

• Steel demand: “... in 2023, the demand for steel in the construction industry will bottom out, and there is likely to be a year-on-year decline of about 2.8%.”

• Steel prices: “Steel prices may fall to some extent in 2023 with mounting economic development pressure though demand is likely to bottom out.”

Oil prices rallied but up just 1.7% in the past week amid volatile trade.

• WTI crude is seen averaging US$84.84 a barrel in 2023, down from US$87.80 in a previous poll, according to Reuters

Gold prices edged higher and up 1.1% in the past week.

QUICK BITES

• Back-to-back negative years: The S&P 500 has only posted back-to-back negative years on four occasions (1929-33, 1939-41, 1973-74 and 2000-02). Excluding 1939-41, the back-to-back declines have all occurred during a recession and amid/after the Fed raised interest rates

• Central banks & Gold: Central banks are hoarding gold.

Welcome back – I hope you all had an enjoyable holiday break.

US markets have mostly been trading sideways for the past few sessions. To recap the S&P 500 chart in 2022: It remained in a downward channel and struggled to hold above the 200-day moving average (blue) on several occasions.

S&P 500 chart (Source: TradingView)

The ASX 200 on the other hand has tumbled -1.6% in the last four sessions and holding just above the 200-day.

XJO chart (Source: TradingView)

SPI futures suggest the ASX 200 is set to open +0.45% but is this just another one of those oversold bounces? Especially coming off the closely watched 200-day.

On a side note, the ASX 200 finished the year down -5.5% but BHP rallied 23.5%. Can you imagine what the index would look like without that input?

There is no sectors to watch for today's Wrap.

ASX corporate actions occurring today:

• Dividends paid: None

•  Listing: None

Economic calendar:

• 12:45 pm: China manufacturing PMI

• 7:55 pm: Germany inflation rate