Morning Wrap: S&P 500 rallies on dovish Fedspeak, Tesla investor day disappoints, ASX set to rise

US stocks rallied after the Fed's Bostic said he favours a 25 bp hike, Elon Musk's was light on details about next-generation EV models, Eurozone inflation eases to 8.5% but still much hotter than expected and another episode of Charts of the Week!

Let's dive in.

S&P 500 SESSION CHART

S&P 500 rallies into positive territory from session lows of -0.60% (Source: TradingView)

MARKETS

• Major US benchmarks rallied after Atlanta Fed President Bostic said he favours a 25 bp hike at the March meeting

• Markets are still pricing in a 33% chance of a 50 bp rate hike this month

• Bostic expects Fed policy to begin to bite this spring, which might set the scene for a pause by mid-to-late summer 

• Bostic said he’s open to revising his terminal rate projection higher from his current outlook of 5.0% to 5.25% and "leave it there well into 2024"

STOCKS

• Tesla investor day disappoints with lack of details (Bloomberg)

• Ely Lilly cuts price of insulin products by 70%

• Silvergate shares halve after delaying its annual report (Reuters)

• Citi to cut hundreds of jobs in investment banking (Bloomberg)

EARNINGS

Salesforce (+11.5%): Beat revenue and earnings expectations, issued a better-than-expected guidance and expanded its share buyback program to up to US$20bn.

Macy’s (+11.1%): Beat revenue and earnings expectations but fourth quarter comparable sales fell -3.3% against the prior period. 

• "Experienced sales strength in gifting and occasion-based categories, including beauty, men’s tailored apparel, dresses and shoes, while sales in active, casual & soft home declined YoY" 

Best Buy (-2.1%): Revenue and earnings missed analyst expectations and comparable sales fell -9.3% in the December quarter.

•  "As we enter FY24, the consumer electronics industry continues to feel the effects of the broader macro environment and its impact on consumers. As a result, our outlook assumes comparable sales decline 3% to 6% for the year." - CEO Corie Barry 

ECONOMY

• Eurozone inflation exceeds expectations at 8.5% in February (Reuters)

• Japan firms add to spending despite global slowdown (Bloomberg)

• South Korea Feb manufacturing shrinks for 8th consecutive month (Reuters)

• US home prices fell year-on-year for first time since 2012 (Bloomberg)

• US mortgage rates jump back above 7%, near 20-year highs (CNBC)

• China ambitious with 2023 growth target, may aim for up to 6% (Reuters)

• Chinese leaders unlikely to roll out huge stimulus amid unexpected rebound in economic growth (Bloomberg)

Deeper Dive

Chart of the Week

This segment of the morning wrap brings you weekly technical commentary on the ASX 200 and some of the more interesting charts in the market. These are not meant as recommendations. They are for illustrative purposes only. Any discussion of past performance is for educational purposes only. Past performance is not a reliable indicator of future return. Always do your own research.

ASX 200 – Support found, for now

Source: Commsec

Last week I talked about how we were playing the waiting game, waiting to see where the ASX 200 would find some support. I mentioned 7200 as a potential candidate. Fast forward to today, as so far the 7200 is holding and we’ve seen some early evidence that the bulls are willing to defend this level. It’s too early to say for sure, but the signs are there. Taking a slightly broader view, the uptrend on the index (unbroken series of higher lows and higher highs) remains intact. If the bulls can continue to defend 7200 when challenged and push the market higher, this would be very encouraging. Pullbacks happen, and we know markets don’t move up (or down) in straight lines. So far, this current pullback can be seen as healthy in the content of a broader move higher.

Eagers Automotive (APE) – Bulls eager for APE

Source: Commsec

APE took off following well received results, pushing the stock from sub $12 to near the 52-week high, of $14.54. The question now, is whether they have spent all their petrol tickets getting there. Whilst volumes have picked up and the breakaway move has been extended (rather than retrace), the RSI is above 80. To me, that means it is extremely overbought and from a pure probability perspective, a sideways grind or a retracement is the higher probability outcome from here. Stocks rarely stay extremely overbought for extended periods. Why is that? Because prices are determined by humans and ultimately there will be some profit taking from those who have been holding for an extended period and are seeing the best price in almost a year. That selling, obviously, creates supply at a time when demand is being maxed out. And economics 101 tells us that when supply increases and is not met by a subsequent increase in demand, prices fall. Of course, that could all be proven wrong (it is only theory, after all), and the bulls could still have enough left in the tank to power through the 52-week high and keep o running. At the very least, this is one to keep an eye on.

BlueScope Steel (BSL) – The grinder come good

Source: Commsec

BSL had been grinding away for the best part of six months, before finally accelerating higher around mid-Feb. As such, it is looking increasingly constructive. We note uptrend support, a break above the neckline around $19.85, and a fairly clear pathway now up towards $22 – as in, there are no recent and immediate resistance levels in the way. Add to that the RSI is not showing as overbought (i.e. sub 70) and, as noted above, it’s looking quite constructive.

Champion Iron (CIA) – The people’s Champion

Source: Commsec

I wanted to highlight the CIA chart for one specific reason – to show just how strong resistance levels can be. The $8 region has, highlighted above, has held CIA captive for the best part of a year. Try as they might, the bulls simply haven’t been able to break this stock higher. Why? Because every time the stock has approached that level, the market has collectively said that they are not willing to pay any more… for whatever the reason. Some of that can be put down to price psychology. Think of it this way. When you are in the supermarket and you see something advertised for $7.95, you might be willing to buy it. See that same item advertised for $8, and suddenly, it’s a lot less attractive. It’s all of 5c! It’s why cars are priced at $49,990, rather than $50,000. A car in the $40k’s is a bargain. At $50k it’s a different proposition. The same principle applies with stocks. At the end of the day, we’re humans and we generally respond in the same way, to the same stimulus. OF course, if and when the stock breaks higher, that will represent a significant shift in the way the market views the stock, and it’s not uncommon to see buying flood in. This is why trading breakouts can be powerful.

ASX corporate actions occurring today:

• Trading ex-div: Lifestyle Communities (LIC) – $0.055, Treasury Wine Estates (TWE) – $018, Healthia (HLA) – $0.02, Kina Securities (KSL) – $0.055, Southern Cross Media (SXL) – $0.046, Ampol (ALD) – $1.55, Nine Entertainment (NEC) – $0.06 

• Dividends paid: Korvest (KOV) – $0.25, Hotel Property Investments (HPI) – $0.092 

• Listing: None

Economic calendar (AEDT):

• 2:00 pm: Bank of Japan Interest Rate Decision

• 6:00 pm: UK GDP

• 12:30 am: Canada Unemployment Rate

• 12:30 am: US Unemployment Rate