Charts and caffeine: Goldman's ASX tech buy, hold and sell

Welcome to Charts and Caffeine - our daily markets wrap featuring the best charts and reads from across Livewire's team of expert editors. Let's get you caught up on the overnight session.

MARKETS WRAP

Risk on was the name of the game overnight, with the NASDAQ outperforming all the major US indices. Stateside, bonds were unmoved by the Federal Reserve minutes or the GDP print which came in worse than expected.

European shares also marched higher. Of note, Brent crude received more buyers than sellers again today while natural gas traders took their profits after futures hit 14-year highs yesterday.

STOCKS WRAP

It's been a retail kind of week. After last week's disappointments around Target and Walmart, the spotlight shone brightly on two other retailers with mid-market department store Macy's and variety company Dollar General both beating the street's estimates on earnings and revenue. 

Couple that with Nordstrom's results earlier this week - and the divergence in the American consumer is quite clear. Those who can spend are spending. Those who cannot are really feeling the pinch.

Baidu, the Chinese equivalent of Wikipedia, also saw its shares rise after its revenues beat expectations. Compatriot Alibaba also beat the street on adjusted earnings and revenues. However, widespread lockdowns across China will impact both companies' next set of results. 

Finally, Kraft Heinz was given the sell-off treatment after UBS downgraded the company's rating to sell because it believes that it will not be able to fend off higher inflation. It's also concerned consumers will leave the premium label for home brands.

But really, I challenge you to name a better processed cheese product than Cheez Whiz!

macro calendar

Tonight - there is only one data point worth watching and it's a big one - US core PCE. Simply translated, it is the Federal Reserve's primary inflation gauge because it takes into account price rises at the consumer level (minus food and energy which are usually volatile by season). 

Last month, the year-on-year rise was 5.2%, sitting roughly at 1983 levels. If that continues, it could prove a tall tale sign of how persistent inflation really is.

Finally, the Bank of Russia cut its benchmark interest rate late yesterday for the third time in a month. This is as the Kremlin actually faces the very real possibility of a debt default. 

STOCKS TO WATCH

Today, our stocks to watch come to us in the form of a buy, hold, and sell from Goldman Sachs. They ran the ruler over the ASX tech sector and posed this question:

What names could outperform in a challenging macro environment?

To do this, they evaluated the ASX All Tech Index (or more specifically, software names with at least mid-cap status) on the basis of free cash flow margins, balance sheet strengths, and recurring revenues. This is what they came up with.

BUY: TECHNOLOGY ONE (ASX: TNE): The broker thinks the company's defensive positioning in sectors that are likely to be resilient to recessions will help it outperform. If you needed any proof of that, look at their recent result.

HOLD/NEUTRAL: WISETECH (ASX: WTC): Top marks for strong (and growing) cash flows and even better marks for customer churn rates. The only problem here is how they plan to grow volumes since the business is part-reliant on subscriptions. 

SELL: PRO MEDICUS (ASX: PME): Margins look resilient, the existing revenue base is strong and the balance sheet is strong. The only problem? Valuations. Plus, a premium pricing strategy in this market may not bode well with a consumer that's tightening their belts.

the chart

Kathy Jones at Charles Schwab delivers this one for a chart of the day. The spread between ultra-short and medium-term returns in the fixed income market can help inform valuations for a whole range of assets (most crucially, equities). 

The moral of this chart is that the spread is tightening - meaning the yield curve is flattening - which in turn, highlights the presumption that investors continue to expect rate hikes in the near term and as a result, have lost confidence in the economy's growth outlook. While the earlier makes sense (the Fed's flagged those very well), the latter is still unclear. 

The chart may also explain why there has been a flight to quality stocks - even here in Australia.

the tweet

When the going gets tough, the tough get going. That maxim has been particularly true for most portfolios this year as the great earnings reset ties in with global central bank tightening plans. Luckily, there's always someone who can see the funny side of all this disappointment.

THE STAT

8%: The fall in house prices that is now expected across Australia by a group of economists, polled by Reuters. 

This is before the Reserve Bank has raised rates materially and before we've even discussed the new federal government's idea to own a stake in your first home. Earlier this week, we also learned that 'construction work done' extended its downtrend as a data point. Costs, costs, costs are the bottom line.

best reads in business news

4 companies with the pricing power to combat inflation (Livewire - Angus Kennedy): Continuing with our deep dive into the ramifications around deglobalisation, Angus has penned this piece with the help of four fund managers. There's something for everyone. Speaking of pricing power, here is a chart on supply chains to round out the week from Bank of America.

China's major COVID-19 lockdowns reverberated throughout the global supply chain. Now, if you were to take the lingering effects of those lockdowns and add that to changes in demand, what might happen?

This chart tries to present that in a very novel way. 

Get the wrap

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