Morning wrap: Wall St slides as Amazon results disappoint, Fed to kick off 'QT', ASX set to fall

ASX Futures (SPI 200) imply the ASX will open 94 points lower, down -1.3%.

Wall Street re-enters correction territory after all three major benchmarks booked sharp losses last Friday, Amazon shares plunged after missing earnings expectations, Warren Buffet said the stock market has turned into a “gambling parlor” and the Fed is expected to kick off quantitative tightening in early May.

Let’s dive in.

Stocks

• Wall Street did not stand a chance after tech earnings fell short of expectations and a record quarterly gain for the Fed’s closely watched employment cost index

• The S&P 500 is down -13% in the first 82 trading days of 2022, the 3rd worst start to a year in history

• The Fed is expected to begin culling assets from its massive US$9tn balance sheet in early May at nearly twice the pace it did in its previous ‘quantitative tightening’ exercise in 2017-19

  • The Fed's balance sheet has more than doubled since March 2020. What happens to the markets when Fed money runs dry?

• All 11 US sectors declined

• Materials, energy, healthcare and industrials fared slightly better declines

• Discretionary, real estate and tech underperformed

• 76% of US stocks declined

• 70% of US stocks trade below their 200-day moving average (67% last Friday, 66% a week ago)

• Amazon (-14%) after the company reported weaker-than-expected Q1 result, with growth rates at their slowest since the dot-com bust in 2001. A massive -US$7.6bn loss was booked on the company’s investment in EV maker Rivian

• Mastercard (-4.1%) beat top and bottom-line estimates amid a resurgence in travel driving increased transaction volumes 

• Apple (-3.6%) shares struggled to capitalise on a better-than-expected Q1 result with 9% year-on-year growth and planned US$90bn share buyback

• Exxon Mobil (-2.2%) missed earnings estimates after a US$3.4bn charge relating to its planned exit from Russia’s Sakhalin-1 project. Management said that overall earnings increased modestly as strong margin improvement and underlying growth was offset by weather and timing impacts

• Southwest Airlines (-0.4%) beat earnings expectations as a rebound in travel demand continues to help revive airlines

Economy

• Last Thursday, US GDP unexpected declined -1.4% in the March quarter, well below consensus expectations of a 1.1% expansion

• US core inflation rose 5.2% for the 12-months to March compared to 5.3% in February, marking the first month-on-month decline in more than a year

• US initial jobless claims fell by 5,000 to 180,000, in-line with estimates and showing that there are no signs the US market is slowing down on the jobs/hiring front 

• US employment cost index accelerated in the March quarter to 1.4% from 1.0% in the December quarter

• US consumer sentiment in April was 65.2, the highest reading in the past three months and first increase this year 

Commodities

• Iron ore prices fell back below US$150

• Oil prices tried to rally as the EU was close to announcing a phased embargo on Russian energy imports

• Gold is trying to reclaim the US$1,900 level as panic begins to set in 

Its widely expected everything gets smashed on Monday. The ASX could surprise given its heavy weighting towards banks and miners.

The US-listed counterparts of BHP (ASX: BHP) and Rio Tinto (ASX: RIO) fell a respective -1.7% and -0.6% last Friday.

Interestingly, a few ETFs were also unscathed, including:

• Global X Copper Miners ETF -1.1%

• Global X Hydrogen ETF -0.5%

• VanEck Rare Earth/Strategic Metals ETF -0.1%

The Rare Earths ETF is an awkward one as most of its holdings are Australian and Chinese listed lithium players - meaning most of these stocks have yet to react to the US market's sharp selloff.

#1 Tech

Tech was obliterated last Friday.

Amazon earnings dominated sentiment, which pushed beaten up tech names to a new floor. The Nasdaq declined -4.2% - its worst April since 2000.

It goes without saying investors should expect a lot of weakness for local names. Especially considering the weakness from US peers like:

• Etsy -8.5%

• Affirm -8%

• Intel -6.9%

• Block -4.9%

• PayPal -4.5%

#2 Energy

Oil briefly rallied as the US market opened last Friday.

OPEC+ is due to meet on Thursday, 5 May to discuss output. Its widely expected that the petroleum organisation won't bow to international pressure and stick to its gradual output policy.

"Oil seems like it is once again heading higher as the supply outlook won’t be increasing significantly anytime soon as US rig counts edge higher and after earnings from oil giants don’t suggest investments in new wells will lag and overall output will likely be flat," said Oanda senior market analyst, Ed Moya.

"The fundamentals are mostly flashing green for oil and if China shows any progress in easing lockdowns, crude prices could rally another 5%."

ASX corporate actions occurring today:

• Ex-dividend: NBI

• Dividends paid: HVN

• Listing: APS, SLS, SRR

• Issued shares: AFP, AGE, AND, APS, AVL, BAS, BCK, BXB, CAV, CDO, CGO, CNU, CVW, CXL, DGO, FBU, GLV, HCH, HMI, IMA, JDO, KRM, LOM, MRL, MRR, NBI, NZM, PDI, PGF, PHL, PIC, RFR, RNU, SGM, SLS, SPT, STM, SYA, TMZ, UWL, XRO