Morning Wrap: S&P 500 powers ahead, Bitcoin and tech stocks rally, ASX set to jump

A broad-based rally extends the US market's winning streak to three, Canada's unemployment rate jumps as rate hikes begin to bite and Fed policymakers reaffirm their hawkish intentions.

Let’s dive in.

MARKETS

US stocks powered ahead, leaving investors stuck in another existential crisis as to whether or not this is just another bear market rally or a market bottom.

Carson Investment Research notes that the S&P 500 tends to be at its most volatile state during the Midterm year. The average midterm year since 1950s experiences a 17.1% average correction, the most out of the four-year US presidential cycle. The good news is that stocks gained 32.3% on average a year off those lows and "have never been lower."

"Although we don’t know if June 16 is officially the lows or not, there could be a lot of opportunity for bulls over the coming year."

Source: Carson Investment Research

• All 11 US sectors advanced

• Energy led thanks to a rebound in oil prices

• Growth-heavy sectors including Tech and Discretionary also outperformed

• Defensives including Staples, Real Estate, Healthcare and Utilities were relative underperformers

• 75% of US stocks advanced

• 57% of US stocks trade below their 200-day moving average (60% last Friday, 64% a week ago)

STOCKS

• Zscaler (+21.9%) delivered a fourth quarter earnings beat and a better-than-expected outlook. The company provides cloud cybersecurity services

  • CEO: “Despite the uncertain macroeconomic landscape which continues to evolve, we continue to see favourable demand for our zero-trust exchange platform because it makes businesses more secure, simplifies IT and reduces cost.”

• DocuSign (+10.5%) posted better-than-expected quarterly earnings. The stock has experienced declines of more than 20% in each of its last three quarterly earnings days

• Lyft (+5.5%) shares rallied on rumours that it could be a potential takeover target. Separately, Loop Capital said Lyft could become the next meme stock

• Tesla (+3.6%) is evaluating the feasibility of a lithium hydroxide refining facility in Texas. Tesla said it would be the “first of its kind in North America”  

• Virgin Galactic (-4.5%) shares were downgraded to underperform by Bernstein with a $4.00 target price, currently $6.00. The broker cited declining confidence in the success of the space tourism business

WORLD NEWS 

• BHP returns to major M&A in hunt for EV metals (Bloomberg)

• Rio Tinto takeover of giant copper mine opposed by top investor (Bloomberg)

• China consumer stock rout signals darkening economic outlook (Bloomberg)

• Xi to meet Putin in first trip outside China since covid began (Reuters)

• Bank of England delays rate decision meeting due to Queen's death (Reuters)

ECONOMY

• Canada’s unemployment rate jumped to 5.4% in August from 4.9% in July

  • The economy lost 39,700 jobs compared to analyst expectations of a 15,000 gain

  • Unemployment has now jumped to its highest level since January 2022

  • It’s worth noting that the Bank of Canada has hiked rates by 300 bps since the beginning of the year

• Fed Evans speech highlights:

  • Upcoming August CPI report could be informative for the Fed

  • Overtightening is a concern once rates get to the 3.5% range 

  • Expects labour market to slow down

• Fed George speech highlights:

  • “A steady path of rate hikes, predictable adjustments based on data could improve market functioning, facilitate balance sheet runoff.”

  • “Case for continuing to remove policy accommodation is clear cut, but peak policy rate is likely just speculation at this point.”

• Fed Waller speech highlights:

  • “This is the strangest labour market I’ve seen in my career”

  • “Fears of a recession starting in the first-half of this year have faded away and the robust labour market is giving us the flexibility to be aggressive in our fight against inflation.” 

  • If inflation rises further this year, Fed may need to lift rates “well above” 4% 

COMMODITIES

• Iron ore futures rose 2.1% to US$102 a tonne

  • Prices rallied 7.2% last week to a one week high

  • “In the short-term, Chinese steel plants are expected to restock iron ore and coking coal during peak season as raw material inventories in steel mills are at a historical low,”  according to Breakwave Advisors

  • “Brazilian and Australian miners might shift shipments back to China in September, propping up Capesize freight rates. In the long run, a full recovery in steel demand is not anticipated to start till the spring of next year.”

• Oil prices rallied as the US dollar tumbled from 20-year highs

  • Energy remains in a volatile place amid deteriorating demand arising from China’s covid-related lockdowns, a surprise jump US crude stockpiles and expectations of more strategic oil reserves from the US

• Gold inched higher thanks to the fall in the dollar

  • “It seems Wall Street is getting comfortable with the idea of another 75-basis point rate hike by the Fed,” said Oanda senior market analyst, Ed Moya

  • ​ “If [US] consumer prices come in hotter-than-expected, gold might see selling pressure target the $1680 region. ​ A sharp deceleration with pricing pressures might only provide a modest boost higher for gold …”

Risk appetite comes roaring back: We're seeing a lot of risk barometers like Bitcoin and the Ark Innovation ETF shrug off the recent bearish mood. Bitcoin went from clinging onto dear life at around US$19,000 to a ~17% rally in the last five days. This attitude spells good news for growth-heavy sectors like Tech and Discretionary.

Bitcoin (Source: TradingView, Annotations by Market Index)

Steel ETF makes a comeback: A useful barometer for iron ore and iron ore miners. The VanEck Steel ETF rallied 5% overnight. We're beginning to see some cautious optimism for China's iron ore demand as construction and property sales enters a peak season - otherwise known as "Golden September, Silver October." Local iron ore majors like BHP (ASX: BHP) and Fortescue (ASX: FMG) went ex-dividend and slumped to around year-to-date lows. They've made V-shaped rallies off lows, so let's see if the can consolidate on recent gains.

VanEck Steel ETF (Source: TradingView, Annotations by Market Index)

Lithium ETF pushes ahead: The VanEck Rare Earth/Strategic Metals ETF showed no signs of fatigue last Friday, rallying 4.1%. It's still unchanged compared to where it was 12 months ago as gains made my its ASX-listed holdings are offset by China-listed holdings.

Renewables fatigue: There was some exhaustion for ETFs including Uranium and Solar. The Global X Uranium ETF closed 0.4% higher, close to a 5-month high but underperformed most other asset classes and ETFs. This could be something to take note of. (Or ASX-listed names just don't care and outperform on Monday).

Likewise, the Invesco Solar ETF stalled despite what was otherwise a rather risk-on session. Volumes are somewhat resetting after a massive spike last Wednesday, with ~3.8m shares traded compared to a 20-day average of ~1.4m.

Invesco Solar ETF (Source: TradingView, Annotations by Market Index)

Stocks going ex-dividend:

• Mon: CNU, DSK, DUR, DVR, HUB, JYC, LSF, MTO, PGC, PRU, SND

• Tue: FOS, GRR, IGL, ING, NWS, OCL, PSI, TPG

• Wed: BRG, CAF, CGC, LOV, MCY, MGH, NZM, PPM

• Thu: 29M, ABA, BST, CTE, DDH, DTL, EGH, EPY, EQT, FBU, IGO, PGF, PWH, REG, RMS, S32, SPK, SVW, WQG

• Fri: AHC, ARA, CAR, CAU, PPC, SNL

ASX corporate actions occurring today:

• Dividends paid: CCP, CPU, CYC, FID, VCX

• Listing: None

• Issued shares: ASN, AUI, AVL, CBR, CSS, DUI, DVL, EOL, EPN, EVN, FCL, FHS, FZO, G88, HGH, ICN, IOD, LOV, MFG, MZZ, NAB, NBI, PCG, PIC, PTX, PUR, RRR, SMI, SP3, SXE, SYA, WBT

Other things of interest (AEST): 

• UK July GDP at 4:00 pm