Morning Wrap: Wall St extends gains, oil tumbles on China's Covid spike, ASX set to rally

Major US benchmarks rallied on election day, China's Covid epicenter shifts to Guangzhou, FedEx parks plans to reflect weak demand, the US dollar extends its tumble, a look at why value outperforms growth when inflation peaks and cryptocurrencies crash as exchange FTX faces a significant liquidity crunch.

Let's dive in.

US MARKETS

US markets continue to power ahead on election day, where the Republicans are likely to take both the Senate and House. In the past few weeks, the blue-chip Dow has outperformed the S&P 500 and Nasdaq, and that trend has only gathered more momentum in recent sessions. European markets were higher, led by the German DAX. Asian markets were mixed on Tuesday.

• Materials led to the upside as the US dollar index extended its selloff, down -2.9% in the last three sessions

• Tech stocks also outperformed as bond yields eased from recent highs

• Energy closed around breakeven as oil prices tumbled due to higher covid cases in China

• Discretionary was the only red sector due to declines from heavyweight names like Tesla and Amazon

• 50% of stocks advanced

• 53% of stocks trade below their 200-day moving averages (54% on Tuesday, 53% a week ago) 

STOCKS

Tesla (-2.7%) issued a recall of more than 40,000 vehicles in the US due to a potential loss of power steering.  

TripAdvisor (-16.5%) provided a mixed fourth quarter outlook, citing strong travel fundamentals against general macro and foreign exchange headwinds. Earnings for the third quarter missed expectations. 

• “.. strong Q3 22 performance, which exceeded our expectations .. Our results reflect a sustained demand for travel and dining, and another quarter of steady progress to full recovery." - CEO Matt Goldberg 

Lyft (-23.3%) shares hit a new all-time low after missing third quarter earnings expectations. Revenue rose 22% to US$1.05bn but losses accelerated to -US$422m from -US$99.7m a year ago

• “We had a strong Q3 adjusted EBITDA came in above the top-end of our outlook and revenues reached an all-time high. We also saw a higher number of Active Riders, rides and drivers than we’ve had since COVID began, reflecting strong organic tailwinds." - CFO Elaine Paul 

WORLD NEWS 

• FedEx parks planes as weak demand prompts cost cutting (Bloomberg)

• China's COVID epicenter shifts to Guangzhou as outbreaks widen (Reuters)

• US retailers push holiday discounts to ease inventory avalanche (Bloomberg)

• Crypto Exchange FTX's token freefalls after Binance sells (Bloomberg)

ECONOMY

No major economic announcements. 

COMMODITIES

Iron ore futures rose 0.85% to US$88.85 a tonne.

• Iron ore is up 13% in the last seven sessions from lows of US$78

• “Iron ore prices may fluctuate alongside steel prices amid a further output reduction of steel mills, of which 90% are facing losses.” - Mysteel

Oil prices tumbled after new covid cases jumped in Guangzhou, one of China’s major manufacturing hubs.

• “Bets that China will reopen soon are losing momentum as cases jumped in Guangzhou and other key Chinese cities.” - Oanda senior market analyst, Ed Moya  

Gold prices rallied ahead of the midterm elections and a weaker US dollar.

• Gold is up 4.6% in the last three sessions from lows of US$1,636  

• “Gold looks like it could be breaking out now and it will just need the macro backdrop to support the move higher. ​ Gold’s rally above the $1700 was impressive as it comes before any exit polling data and well ahead of Thursday’s inflation report.” - Moya 

QUICK BITES

• Megacaps fire sale: Seven big tech giants (Meta, Amazon, Apple, Netflix, Microsoft, Alphabet and Tesla) have wiped out more money than the Fed, down -US$4.1tn from recent peaks versus a -US$3.3tn decline in central bank liquidity.

Source: Bank of America

• Another bullish post-midterm chart: As midterm uncertainty closes, its historically marked a bullish 6-12 month performance for the S&P 500, which has rallied 100% of the time across both timeframes.

Source: Almanac Trader

• Value beating growth: "Value has proved to be more cyclical, outperforming during periods of accelerating and above-trend economic growth. History also shows that value has generally beaten growth in the 12 months after core CPI inflation peaks." - Nuveen

Source: Nuveen, Bloomberg

Source: SG Cross Asset Research

We're seeing a very consistent outperformance and divergence between the Dow and Nasdaq. As the ultra low interest rate era unwinds, investors are rotating away from the richly valued tech and back into sectors that demonstrate strong cashflows like Staples, Materials and Health Care.

Still, the market's recent rally will have to make it through China's ongoing covid spike, the midterm elections and US CPI data on Friday.

SPI futures suggest another positive open buoyed by solid gains across commodity markets thanks to a weaker US dollar.

Sectors to watch

Copper: Copper spot prices kicked on after a massive rally last Friday and pullback on Monday. This saw the Global X Copper Miners ETF rally 3.11% to a 4-month high and closing just below the 200-day moving average. Could we see some more follow through strength for local names like Sandfire and 29Metals?

Global X Copper Miners ETF (Source: TradingView)

Gold: Gold has successfully defended recent lows of US$1,620 on three occasions, now trying to work its way back up. Its resurgence could see some positive flow for local gold miners.

Gold price (Source: TradingView)

Lithium: The VanEck Rare Earth/Strategic Metals ETF is trying to set a bottom and work its way back up. Interesting to note that US lithium chemicals giant Albemarle rallied 6.8% overnight, near all-time highs.

VanEck Rare Earth/Strategic Metals ETF (Source: TradingView)

Crypto: Cryptocurrencies sold off sharply overnight after crypto exchange FTX went too far with leverage, prompting customers to withdraw and squeeze its liquidity. FTX's token is down -76% in the last 24 hours. Rivals Binance have stepped in to acquire FTX and save it from insolvency.

Bitcoin (Source: TradingView)

Stocks going ex-dividend over the next week:

• Wed: KMD Brands (KMD), ResMed (RMD), Waterco (WAT)

• Thu: Acorn Capital (ACQ)

• Fri: Challenger (CGF)

• Mon: Lion Selection Group (LSX)

• Tue: QV Equities (QVE), Plato Income Maximiser (PL8)

ASX corporate actions occurring today:

• Dividends paid: None

•  Listing: None

Other things of interest (AEDT):

• 11:30 am: Australia building permits

• 12:30 pm: China inflation