Morning Wrap: Wall Street rallies amid turnaround for retailer earnings, ASX set to rally

Major US indices closed sharply higher, US retailers delivered better-than-expected results, the Fed seems committed to only a gradual tightening policy, SEC to crackdown on misleading ESG funds and China says its economy is doing worse than in 2020.

Let’s dive in.

Stocks

• Wall Street rallied on a batch of positive earnings from consumer and technology stocks

• The Fed minutes from Thursday has provided investors with a clear view that:

  • There will be 2-3 half-point rate increases in the next few meetings

  • The Fed will only gradually tighten policy

  • The Fed will pause and assess its hiking cycle towards the end of the year

• The past few weeks saw the US market weighed by several downbeat earnings from Target, Walmart and Snapchat

  • The narrative began to swing today following upbeat earnings from consumer companies like Macy’s, William Sonoma and Dollar Tree

• The US Securities and Exchange Commission is proposing changes to prevent misleading or deceptive claims by funds on ESG qualifications and better disclosure requirements 

• 10 out of 11 US sectors advanced 

• Discretionary, tech and financials outperformed

• Real estate was the only red sector

• 76% of US stocks were higher

• 70% of US stocks trade below their 200-day moving average (72% on Thursday, 74% a week ago)

• Dollar Tree (+21.9%) smashed Wall Street’s quarterly earnings expectations and raised its outlook for the coming year

  • The discount store said consumers are flocking to lower prices during inflationary times

  • The business is not immune to rising prices, but initiatives such as self-serving checkouts, carrying more high-margin products and rolling out $3-5 items is supporting resilient margins

• Costco (+5.6%, after hours: -2.6%) topped analyst estimates for the March quarter, comparable sales including fuel and currency rose +14.9% compared to +11.5% estimates  

• Dell Technologies (+1.5%, after hours: +5.3%) reported a revenue beat for the March quarter, driven by better-than-expected demand for enterprise hardware and healthy PC sales

• Gap (+4.5%, after hours: -13%) joins the long list of struggling retailers, reporting a decline in first-quarter sales and slashing its full year guidance

  • A poor mix of clothing sizes, inventory delays and increase in promotions weighed on sales and margins

  • “Our inventory levels were significantly higher than we had hoped,” said CFO Katrina O’Connell 

Economy

• US new jobless claims fell by 8,000 last week to 210,000

  • Signals that layoffs remain extremely lower and job vacancies remain high

  • Applications for unemployment benefits hit a 4-month high of 218,000 a week ago

• US first-quarter GDP fell -1.5% compared to last year

  • The decline was attributed to a record trade deficit, lower government spending and elevated business inventories

  • Economists expect GDP to bounce back in the second quarter to a 2% annual growth rate 

• US corporate profits fell -2.3% in the first quarter, the first drop in almost 2 years

  • After tax profits fell -4.3% compared to the previous quarter

• China's Premier Li Keqiang said that some aspects of the economy was performing worse than in 2020

  • Li held an emergency meeting on Wednesday with representations from local governments, state-owned companies and banks to do more to stabilise economic growth

Commodities

• Iron ore futures dipped -2% on Thursday amid weaker prices caused by limited demand in downstream Chinese steel markets, according to Fastmarkets

• Oil is pushing a 2-month high

• Gold prices edged lower as risk appetite returned to equities

#1 Travel

The Global Jets ETF topped the leaderboards overnight following a broad-based rebound across travel-related companies, several of which rallied at least 5%.

A number of US airlines provided updates on Thursday, and more broadly speaking, said that demand continues to be strong, fuel costs will come in above expectations but strong pricing power will help offset costs.

Its interesting to note that local travel names like Qantas (ASX: QAN) and Flight Centre (ASX: FLT) did not sell off as hard as their US-peers and therefore not bouncing as much as well.

Source: TradingView

#2 Tech

The Nasdaq headlined gains as risk-appetite returned to the growth side of town.

The narrative was once again, the more beaten up the stock, the bigger the rally. Notable winners include:

• Affirm +21.7%

• Etsy +9.3%

• Tesla +7.4%

• Block 7.0%

• Zoom +4.6%

Megacaps including Meta, Amazon, and Apple rallied at least 2%.

#3 Lithium

The Rare Earth/Strategic Metals ETF is starting to find its groove after the massive April to mid-May correction.

In the past week, the ETF has been unphased by positive news from the industry such as Tesla ramping up towards pre-lockdown production and Pilbara Minerals' (ASX: PLS) record auction results.

This perhaps goes to show the importance of the broader market rather than looking at such catalysts in isolation.

Source: TradingView

#4 Uranium

The Global X Uranium ETF is another beaten up 'green' related sector that's starting to stabilise.

Source: TradingView

#5 Energy

Crude prices staged a surprising push overnight to a 2-month high of US$114.

Any further upside seemed limited amid:

• China's Premier Li Keqiang delivering a downbeat outlook for China's economic outlook

• Lack of progress with EU's ban on Russian oil

However, solid US corporate earnings and improving jobless claims likely supported higher oil prices.

"Until a major update occurs with either the EU proposed ban on Russian oil or China’s COVID lockdown situation, WTI crude looks like it wants to take a nap between US$109 and US$112 range," said Oanda senior market analyst, Ed Moya.

Source: TradingView

ASX corporate actions occurring today:

• Ex-dividend: CSR, WHF

• Dividends paid: ACF, FGG, WAA, WGB

• Listing: None

• Issued shares: AFP, ART, ATS, BCB, CNJ, E79, EMR, GBZ, GLA, GMA, KZA, LCL, LPD, MQR, MRI, NAB, NBI, QIP, R3D, SLX, SNS, UWL

Other things of interest: 

• Australia Retail Sales Preliminary (April) at 11:30 am

• US Personal Consumption Expenses Price Index (April) at 10:30 pm

• US Personal Spending (April) at 10:30 pm

• US Personal Income (April) at 10:30 pm