Morning Wrap: US stocks rally as market digests GDP and earnings, ASX set to rise

ASX 200 futures are trading 26 points higher, up 0.35% as of 8:20 am AEDT.

Major US benchmarks powered ahead after US December quarter GDP figures top analyst expectations, IBM and SAP join in on the big tech layoffs, Tesla beats earnings expectations and a new look to our 'ASX Morning Brief'.

S&P 500 SESSION CHART

KEY PRICES

MAJOR HEADLINES

• Markets volatile but close higher amid reaction to latest GDP numbers, earnings
• US GPD comes in stronger-than-expected, at a 2.9% annual pace
• The US economy is not in as good a shape as the latest GDP numbers suggest (MarketWatch)
• US housing demand shows signs of recovery (Bloomberg)
• China's travel and box office receipts rebound strongly over lunar new year holiday (Bloomberg)
• China says Covid deaths and severe cases drop by more than 70% (Bloomberg)
• South Korea economy contracts as exports fall and consumer spending dips (Bloomberg, Reuters)
• UK business confidence drops to lowest since financial crisis (Bloomberg)
• Germany, US to send battle tanks to Ukraine, Russia slams decision (Reuters, Bloomberg)
• US and EU discuss deal to widen access to Inflation Reduction Act (Bloomberg)
• IBM cutting 3,900 jobs (Reuters)
• SAP planning to cut 3K jobs, sell Qualtrics stake (Bloomberg)
• Chevron pledges $75B for share buybacks as cash pile grows (Reuters)

US EARNINGS

• Tesla (TSLA) up 11% on record revenue and an earnings beat.
• Southwest Airlines (LUV down more than 4% after posting a wider-than-expected 4Q loss and warning of another loss in the current quarter
• IBM (IBM) down 4% despite increasing revenue more than 6% in 2022, the biggest sales increase in more than a decade.
• Archer Daniels Midland (ADM) down around 1% despite the agribusiness’s 4Q profit rising to US$1.02 billion from US$782 million in the year-ago quarter.

WHAT’S ON TODAY

ASX corporate actions occurring today:

• Trading ex-div: None
• Dividends paid: Mayne Pharma (MYX), $0.544; Australia Unity Office Fund (AOF), $0.025, Ricegrowers Ltd (SGLLV), $0.10, RAM Essential Services Property Fund (REP), $0.0145
• Listings: None

Economic calendar:

• There is nothing particularly pressing coming up on the economic calendar, with the University of Michigan consumer sentiment read tonight about the only thing of importance.
• Things really ramp up next week with US employment numbers, manufacturing and services PMIs, and central bank decisions from the US Fed, the BoE, and the ECB.

DEEPER DIVE

Good morning Livewire and Market Index readers,

Chris Conway, Managing Editor at Livewire Markets. You will have noticed some changes recently to the Morning Wrap and the old Charts and Caffeine. These changes have (and will continue to) come about as myself, Kerry Sun, and Hans Lee unashamedly strive to bring you the best morning note in the country. Our goal is to give you all the information you need from the overnight session in a quick take at the top of the note, and then to give you some fresh ideas and a deeper dive into the most important happenings in markets in the section below. This will be a work in progress and while we are refining things, we will continue to ask you for feedback about what you like and don’t like. Thanks for your patience as we bring this together, we think it will be worth it.

ASX 200 TECHNICALS

I started my journey in markets as a trader and, more specifically, a trend trader. I was lucky enough to have Stuart McPhee (author of Trading in Nutshell) as my mentor, and I have a Certified Financial Technician (CFTe) accreditation. Suffice to say, I love my technicals and every Friday I will be bringing you my ‘read’ of the ASX 200. Here goes.

What stands out is the clearly defined uptrend on the ASX 200 – series of unbroken higher lows and higher highs as highlighted by the yellow unbroken line. The EMAs (8-, 21-, and 125-period) are in a bullish configuration, showing trend alignment across multiple timeframes.

This is all good news for the bulls and the only question worth asking is whether the market has run too far, too fast. The rally from the January low to the recent swing high was almost in a straight line and, as anyone who has been watching markets long enough knows, markets rarely move in straight lines. Note that we’re also about to see the RSI print a sell signal, if and when it crosses back below the 70 line. 

Overall the market looks constructive but there are some questions being asked of the bulls right now. In a perfect world, any pullback will be shallow, ideally back into 7400 – the swing high from late November/early December. 

If the bulls defend that level on a pullback, and build a base of support, perhaps they can launch a fresh attack on the all-time highs – highlighted by the yellow dotted line. For that to happen, however, we’d probably need to see some upside surprise through reporting season, and a further softening of inflation numbers in the US, and Australia as well.

COMMODITIES ALL THE RAGE

I couldn’t go past the table above, which has been doing the rounds, along with the post from Andrew Mitchell, founder at Ophir Asset Management – available here. If not for commodities, and particularly iron ore (which is up some 50% since November), one wonders where our market might be.

Last year, whilst equity markets struggled, commodities rallied; the S&P Goldman Sachs Commodity Index rose 8.7%, following a stellar +37.8% return in 2021. These numbers are to be taken with a grain of salt, however. Mitchell notes that "the prices of commodities tend to mean revert, with last year’s winners often becoming next year’s losers (and vice versa)".

With that in mind, is it time for the copper and gold bulls to rise?

STOCKS TO WATCH

It has been pretty lean in terms of broker updates to start the year, with many not coming fully back online until after Australia Day. Hopefully we see some more broker notes in coming weeks. There was an update earlier this month from Macquarie, running the ruler over the Australian hospitals/diagnostic services space in light of the latest Medicare data.

Macquarie noted volume data for November-22 showed improved month-on-month trend, although face-to-face GP consultations remain below pre-covid levels. Macquarie sees this latter factor as the basis for improved diagnostic services volumes over the coming year.

There preferred exposure in the space is Ramsay Healthcare (ASX: RHC) and Healius (ASX: HLS), the target prices for which are $69.15 and $4.15 respectively, against current prices of $67.30 and $3.21.

GOOD READS

You will forgive the shameless self-promotion, but I recently had the pleasure of sitting down with Bob Desmond, Head of Claremont Global and co-portfolio manager of the Claremont Global Fund. The Fund has the distinction of being the most-viewed fund on Livewire in 2022, as well as the best-performing equities fund (either domestic or global focus) on the Livewire platform over the past five years. In the interview, Desmond talks about the Claremont process, and three global stocks he likes right now.

Funds

3 top stocks from the best-performing equities manager on Livewire over the past 5 years

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