Morning wrap: Wall Street slumps as tech stocks freefall, ASX set to slide

ASX Futures (SPI 200) imply the ASX will open 107 points lower, down -1.5%.

Wall Street closed sharply lower as concerns about slowing global growth and a more aggressive Fed continued to weigh, Beijing plans to test all 22m residents after just a handful of cases and US reporting season is in full throttle.

Let's dive in.

Stocks

• Things are looking very ugly for US markets

  • Major US indices are freefalling instead of trying to stabilise around these levels

  • Nasdaq (tech) has breached May lows, now trading at its lowest since December 2020

  • Dow Jones (blue chip) and S&P 500 (large cap) have fared slightly better, but still threatening to roll over and breach prior lows

• Beijing plans to test almost all 22m residents after reporting just 33 new locally transmitted cases on 25 April. Citizens fear that a Shanghai-style lockdown will be imposed on the capital city

• China has pledged more support for the economy including relaxation of property and internet curbs, infrastructure investment and lowering borrowing rates

• 10 out of 11 US sectors were red

• Discretionary and tech underperformed

• Energy, utilities, staples and real estate sectors fared slightly better

• 81% of US stocks declined

• 69% of US stocks trade below their 200-day moving average (66% on Tuesday, 61% a week ago)

  • This indicates that market breadth has rapidly deteriorated as price trends turn negative 

• Alphabet reported weaker-than-expected earnings after market close. Solid revenue growth failed to translate to EPS growth, which was down -6.5% year-on-year

• Microsoft beat earnings expectations on another quarter of strong demand for cloud-based services. The company’s stock is up 1.7% in after hours

• United Parcel Services -3.5% after earnings topped expectations as the parcel delivery company passed on higher prices amid a continued boom for eCommerce sales

• General Electric -10.3% even after first-quarter revenue and profit beat expectations. The industrial conglomerate missed free cash flow forecasts and provided a rather downbeat outlook

• JetBlue Airways -11.4% after reporting a narrower-than-expected loss. The airline flagged plans to reduce capacity growth to help restore operational reliability

• US earnings to watch this week:

  • Wed: Spotify, T-Mobile, Meta, PayPal, Ford, Boeing

  • Thurs: Twitter, Mastercard, McDonalds, Amazon, Intel, Apple

  • Fri: ExxonMobil, AstraZeneca, Chevron

Economy

• US factory orders for durable goods rose 0.8% in March and business investment rebounded, signally the economy is still growing at a steady pace

Commodities

• Iron ore is trying to stabilise around US$150 a tonne

• Oil prices got a small boost after China stepped up efforts to calm markets and increase stimulus

• Gold is trying to find some support around US$1,900 as yields struggle to move higher

When major US indices fell 1-2% last Thursday, it wasn't really panic driven. Stock and ETF volumes were relatively normal, if not low and the VIX was still trading around 22.

Now, things are starting to get a little crazy. Any signs of strength (e.g. yesterday's massive reversal) is getting sold into, things aren't bouncing where they should be, stocks and ETFs are closing at intraday lows and the VIX is spiking.

#1 Tech

Tech stocks were smashed overnight as juggernauts Microsoft and Alphabet reported first quarter earnings (after market).

The two companies delivered diverging results, as Alphabet experienced a massive jump in headcount, solid revenue growth but failed to trickle top-line efforts into profit growth.

Microsoft on the other hand, experienced another quarter of strong growth as workplaces opt for a hybrid model between working from home and on-site.

Tesla fell an outsized -12.2% as Elon Musk's Twitter takeover raises the risks such as sale of stock and spill-over political effects.

Other notable losers include Affirm (-7.1%), Block (-6.4%), Netflix (-5.5%), PayPal (-4.7%) and Amazon (-4.6%).

Expect a bloody hard day.

#2 Lithium

Lithium might be a difficult pill to swallow for investors that have fallen in love with the narrative of vertical spot price appreciation and EV demand.

The VanEck Rare Earth/Strategic Metals ETF fell another -3.4%, closing near session lows on more than double its usual volumes. The ETF is struggling to stabilise having sliced through key areas of supports - the 200-day (blue line) and high $90 level (red band).

Source: TradingView, Annotations by Market Index

Factors beyond lithium prices and EV demand are weighing on valuations and sentiment - notably a more hawkish Fed and a covid outbreak in Beijing.

Expect more weakness for local names as the market tries to find its footing, although we don't know where that might be.

#3 Travel

The US Global Jets ETF was looking bullish after strong first-quarter earnings from Delta earlier this month.

Now, things are going full circle after JetBlue said it will scale back 2022 growth plans to no more than 5% to avoid flight disruptions. Rather than coming out of covid with guns blazing, airlines are now rethinking growth plans as they grapple with higher fuel costs, staff shortages, supply chain issues and weather delays.

After a brief rally above the 200-day (blue line) and trendline, the ETF has whipped back below both.

Source: TradingView, Annotations by Market Index

#4 Gold

Gold struggles to perform when things turn from bad to worse.

"Gold is trading more like a risky asset right now than as a safe-haven and that leaves it vulnerable here. If the war in Ukraine sees further escalations, that could be the catalyst to send prices sharply lower," said Oanda senior market analyst, Ed Moya.

The narrative is now going full circle as bad news appears to no longer be a positive driver for gold prices.

ASX corporate actions occurring today:

• Ex-dividend: None today

• Dividends paid: TGP TOT

• Listing: None today

• Issued shares: ABP, ADA, ADH, AO1, ARL, AX8, AYA, AZI, BGL, BIO, BRK, CEL, CQE, DTR, EDC, EMR, FBU, GCY, GLL, GMD, IVZ, IXR, LM8, MRD, MTH, NBI, PEK, PNN, SZL, TLG, VGI, XRF, XTC

Things of interest (AEST):

• Australia Inflation Rate (March Quarter) at 12:30 pm

  • Consensus 4.6%