Morning Wrap: S&P 500 rallies ahead of US midterm elections, ASX set to rise
ASX Futures (SPI 200) imply the ASX 200 will open 39 points higher, up 0.56%.
ASX Futures (SPI 200) imply the ASX 200 will open 39 points higher, up 0.56%.
US stocks jump ahead of midterm elections, the S&P 500 has historically delivered positive returns 6 and 12 months post-midterms, Facebook-parent Meta plans to commence large-scale layoffs, the US dollar continues to fall and some key takeaways from US earnings season.
Let's dive in.
US MARKETS
Wall Street rallied for a second consecutive session as the US kicks off their midterm elections. The Democratic Party has held the majority in both the House and the Senate for the last two years, which has been helpful for President Joe Biden in passing the laws he wants. US market performance post-midterms has historically been very strong (historic performance below).
Energy headlined gains despite oil prices taking a pause. The market seems to have largely ignored China’s commitment to lockdowns
A mix of growth and defensive outperformed benchmarks, most notably Health Care, Industrials, Staples and a bounce for Tech
58% of stocks advanced
54% of stocks trade below their 200-day moving averages (55% on Monday, 53% a week ago)
STOCKS
Meta (+6%) rallied after a Wall Street Journal report said the company is planning to begin large-scale layoffs this week.
Apple (+0.3%) shares rallied back to breakeven after cutting its outlook for iPhone shipments due to Chinese lockdowns.
“COVID-19 restrictions have temporarily impacted the primary iPhone 14 Pro & iPhone 14 Pro Max assembly facility located in Zhengzhou, China. The facility is currently operating at significantly reduced capacity..we now expect lower iPhone 14 Pro & Pro Max shipments.” - Apple press release
EARNINGS
Approximately 85% of S&P 500 companies have reported third quarter earnings so far. Here are some key takeaways from DataTrek Research:
“70 percent of S&P companies have beaten Wall Street earnings estimates this quarter, below 1, 5 and 10-year averages of 78, 77 and 72 percent respectively.”
“The upshot here is that high inflation is allowing companies to outperform on the top line versus long-run average revenue beat rates/amounts, but that same inflation is causing considerable operating margin pressure.”
“Wall Street analysts have been cutting their estimates for future quarters in response to Q3’s lackluster results.”
Berkshire Hathaway (+1.5%) posted a 20% increase in operating profits to US$7.76bn, aided by gains from investments in insurance, energy and infrastructure. Though, it did post a net loss of -US$10.1bn.
"The amount of investment gains/losses in any given quarter is usually meaningless & delivers figures for net earnings (losses)appl/share that can be extremely misleading to investors who have little or no knowledge of accounting rules.” - Warren Buffett
WORLD NEWS
iPhone plant woes are least of Apple's problems (Reuters)
Global inflation may be nearing its peak says IMF (Bloomberg)
Meta is preparing to notify employees of large-scale layoffs (WSJ)
Morgan Stanley says US Midterms set to fuel stock rally (Bloomberg)
ECONOMY
No major economic updates.
COMMODITIES
Iron ore futures rose 0.3% to US$87.5 a tonne.
“Northern China, home to large steelmakers, could see winter output cuts from mid-November, especially in the Hebei steel hub,” sources told S&P Global, adding that “these curbs are expected to remain smaller than the previous year.”
Oil inched lower as Chinese officials pushed back the idea of easing covid restrictions.
“Crude prices still seemed destined for a move above the $100 a barrel level but that might have to wait until we see a clear peak in cases. China’s covid cases are at a six-month high and that might support holding onto their zero-Covid policy a little while longer,” - Oanda senior market analyst, Ed Moya
Gold eased after a massive rally on Friday.
“The best-case scenario for gold is for a Republican sweep and further signs pricing pressures are easing. Gold looks like it will closely track the dollar and that means it will hinge on this week’s inflation report.”
Other commodities of interest:
Natural gas +7.1% to US$7.03/MMboe
Platinum +2.1% to US$981/oz
Newcastle coal futures -3.7% to US$336/t
QUICK BITES
Post-midterm boom: The S&P 500 has had positive returns in the 6 and 12 months post-election, up a respective 15.1% and 16.3% on average.
Source: Ally Invest
Bearish earnings revisions: The only sectors that have received positive earnings revisions for 2023 are energy and utilities. Everywhere else is facing drastic earnings downgrades, according to Goldman Sachs
Source: Goldman Sachs
Seasonality update: Can the market piggyback the historic strength it sees post midterms and November/December.
Source: SentimenTrader
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ASX Morning Brief
I was a little disappointed about Monday's Wrap as it did not mention China's rejection of reopening rumours.
Although, it somewhat worked out in the end because the market traded like nothing happened. We didn't see key sectors like iron ore fade on the news.
We continue to see an outperformance from the blue-chip Dow, while the S&P 500 and Nasdaq lag.
SPI futures imply a +0.56% open for the ASX 200. Eyes on whether or not banks can bounce back after Westpac's -3.9% selloff on Monday. The US dollar also extended its selloff but some commodities like oil and copper eased after a big rally last Friday.
Key Events
Stocks going ex-dividend over the next week:
Tue: Reckon (RKN)
Wed: KMD Brands (KMD), ResMed (RMD), Waterco (WAT)
Thu: Acorn Capital (ACQ)
Fri: Challenger (CGF)
Mon: Lion Selection Group (LSX)
ASX corporate actions occurring today:
Dividends paid: New Hope (NHC)
Listing: None
Other things of interest (AEDT):
10:30 am: Westpac consumer confidence index
11:30 am: NAB business confidence index
