Morning Wrap: Wall St rallies as Apple earnings save the day, ASX set to surge

Wall Street pushed aside Amazon's freefall and continued to rally ahead of the Fed's interest rate decision later this week, Intel and Apple beat earnings expectations, Germany's GDP unexpectedly rises in the third quarter, iron ore prices tumble to sub US$80 a tonne and why it might be time to pay attention to defensive sectors.

Let's dive in.

US MARKETS

• All three major US benchmarks ignored Amazon's abysmal earnings and a rebound in bond yields

• Wall Street appears to be growing more confident that the Fed will reveal a downshift in its hawkish views after one last 75 bp rate hike on Thursday morning

• Tech led to the upside thanks to better-than-expected earnings from heavyweights Apple and Intel

• Defensive sectors including Utilities, Real Estate, Staples and Industrials also outperformed

• 72% of stocks advanced

• 54% of stocks trade below their 200-day moving average (58% last Friday, 63% a week ago)

EARNINGS

• Gilead Sciences (+12.9%) earnings beat Wall St expectations on top of an upbeat earnings guidance 

  • Growth drivers: “The majority of this growth was driven by HIV, and over 40% of the $620 million increase in sales came from oncology.” - CEO Dan O’Day

• Intel (+10.7%) earnings beat Wall St expectations. The chipmaker announced a weaker-than-expected guidance for the full-year but plans up to US$10bn in cost reductions over the next three years 

• Apple (+7.6%) earnings beat both revenue and profit expectations

  • A record quarter: “We set an all-time revenue record for Mac and September quarter records for iPhone, and Wearables home and accessories. Services to September quarter record as well.” - CEO Tim Cook

  • Emerging markets outperform: “Our performance was particularly impressive in several large emerging markets with India setting a new all-time revenue record and Thailand, Vietnam, Indonesia and Mexico more than doubling year over year.” - CFO Luca Maestri

  • Outlook: "Overall, we believe total company year-over-year revenue performance will decelerate during the December quarter as compared to the September quarter for a number of reasons.” - CEO Tim Cook

• Amazon (-6.8%) shares briefly plummeted -12% to levels not seen since April 2020. The company missed earnings expectations, gave a weak guidance for the December quarter and guided to weaker-than-expected holiday sales

  • Tightening the budgets: "We do see some of the consumers are cutting the budgets and trying to save money in the short run." - CFO Brian Olsavsky

  • Cloud remains solid: "With the ongoing macroeconomic uncertainties, we've seen an uptick in AWS customers focused on controlling costs.”

  • Forex to drag on earnings: "As I look ahead to guidance for Q4, I think the biggest individual factor is still going to be foreign exchange. This guidance includes 460bps of unfavourable impact YoY. FX is a bigger issue for us on revenue growth ..."

ECONOMY

Germany GDP rose 0.3% QoQ in Q3 from 0.1% in Q1

• Beat consensus expectations of a -0.2% decline

• GDP rose 1.2% year-on-year in the September quarter, from 1.7% in the June quarter

• “Looking ahead, the surprise growth in the third quarter does not mean that the recession narrative has changed. All leading indicators point to a further weakening of the economy in the fourth quarter and there doesn’t seem to be any improvement in sight.” - ING 

Germany inflation accelerated to 10.4% in October from 10.0% in September

• Ahead of consensus expectations of a smaller rise to 10.1%

• “The available regional data suggest that the increase in headline inflation was not only driven by higher food, energy and commodity prices. Inflationary pressure is actually spreading across the entire economy with prices for clothing and other apparel, and leisure and packaged holidays further increasing.” - ING

US personal income rose 0.4% MoM in September from 0.4% in August

•  In-line with expectations

US personal spending rose 0.6% MoM in September from 0.6% in August

• Beat consensus expectations of a 0.4% increase

• Both income and spending indicators are not showing any signs of slowing. However, consumers are saving less, with the savings rate hitting 3.1% in September, the lowest since the 2005-08 period

COMMODITIES

• Iron ore futures fell -2.2% to US$78.4 a tonne

  • Prices are down -17% in the past week to the lowest level since March 2020 

• Oil prices inched lower in volatile trade

  • “Oil markets remain volatile as China ramps up COVID restrictions, some US oil giants signal modest commitments to boost production, and the global economic outlook continues to dim.” - Oanda senior market analyst, Ed Moya

• Gold prices tumbled below the key US$1,650 level

  • “Gold prices softened after another round of US data did not support calls for the Fed to downshift tightening in December. The bullish case for gold is improving as financial markets begin to grow optimistic that the Fed will begin the deliberation of a slower pace of tightening.” - Moya

Other commodities of interest:

• Aluminium -2.5% to US$2,224/t

• Palladium -2.1% to US$1,900/oz

QUICK BITES

I've got some pretty juicy insights this morning.

• Unprofitable tech: JPMorgan's unprofitable tech index performance is now below the S&P 500

Source: JPMorgan

• No signs of financial stress: The St Louis Fed's Financial Stress Index reflects the degree of stress in the markets. Zero is viewed as representing normal financial conditions and values below zero suggest below-average financial market stress. So far, market's seem pretty relaxed

Source: Federal Reserve Bank of St. Louis

• Dow power: "The Dow is up 10.8% for the month, which would be the best October since Charlie Dow created the Dow in 1896. The other Octobers to gain 10%? 1982 and 2002. Both ended bear markets and stocks had huge multi-year gains next," - Ryan Detrick, Chief Market Strategist at Carson Group

• Christmas rally: We're heading into what's historically the strongest two months of the year. (Note: Past performance is not a ...)

Source: SentimenTrader

Find out more about our ETF list and why its useful for ASX investors.

"Wall Street rallies on Amazon earnings miss, surging bond yields and a 75 bp rate hike due later this week" - yeah look this game just doesn't make sense sometimes.

Market are again rallying on hopes of a Fed pivot or rather, a slowing of rate hikes. If the last couple of months were to repeat itself - this ends badly. But maybe this time is different, let's see how it plays out.

We've been highlighting the outperformance of the Dow Jones in the past few Wraps - a benchmark that's less weighted towards tech and more towards defensive sectors and blue chip stocks.

The Dow is up almost 15% since its low on 13 October. Over the same period, the S&P 500 is up 11.7% and the Nasdaq has risen just 9.6%. This rotation is perhaps something to take note of, as capital is showing signs of a pivot from growth and commodities into defensives.

SPI futures imply the ASX 200 will open +1.35%, which pushes us back above that key 6,620 level. The question is - do we see a Dow like bounce that'll be lead by things like Staples, Real Estate, Financials and Utilities? Or will we see more broad-based participation?

XJO chart (Source: TradingView)

Sectors to watch

Our ETF list was a little messy in its performance last Friday. Several ETFs like Rare Earth/Strategic Metals, Steel and Copper tumbled due to their weightings in ASX-listed companies.

Biotech: iShares Biotechnology ETF rallied 3.8% thanks to strong earnings from Gilead. This could see some positive flow for names like CSL (ASX: CSL)

Travel: US Global Jets ETF rose 1.03% to a six week high. The ETF holds mostly US-listed airlines alongside some international carriers including Qantas (ASX: QAN)

Lithium: VanEck Rare Earth/Strategic Metals ETF fell -3.16% overnight, partly due to its weightings in ASX-listed names like Pilbara Minerals (ASX: PLS) and Allkem (ASX: AKE). This doesn't really provide us with a good lead for local names - do we see a bounce alongside the surging index or will they underperform?

Stocks going ex-dividend over the next week:

• Mon: Autosports (ASG)

• Tue: Brickworks (BKW)

• Wed: Event Hospitality and Entertainment (EVT) 

• Thu: EZZ Life Science (EZZ)

• Fri: None 

ASX corporate actions occurring today:

• Dividends paid: Steamships (SST), Magontec (MGL), Rural Funds (RFF), Kelly Partners (KPG) 

• Listing: None

Other things of interest (AEDT):

• 11:30 am: Australia retail sales

• 12:30 pm: China manufacturing and services PMI

• 9:00 pm: Eurozone Q3 GDP

• 9:00 pm: Eurozone inflation