Australian shares were poised to open higher for a third session after an earnings surprise from Facebook parent Meta Platforms helped power the S&P 500 to its strongest level in five months.
The S&P/ASX 200 will open 25 points or 0.34 per cent higher, according to futures action. The Australian benchmark is on track to extend its winning start to the year to a fifth week.
Overnight, mining stocks dragged in the US following retreats in iron ore, copper and gold. BHP and Rio Tinto logged sharp losses in US trade. Oil settled lower. The dollar fell almost 1 per cent, trading back under 71 US cents as some of the post-Fed euphoria wore off in the US.
Wall Street
A sharply divided market saw a huge surge in Meta lift the S&P 500 and Nasdaq to multi-month highs while the Dow (which does not have Meta as a component) was dragged lower by healthcare stocks.
The S&P 500 finished 61 points or 1.47 per cent ahead after rising to its highest since August. The Nasdaq Composite jumped 385 points or 3.25 per cent to its highest since September ahead of after-bell earnings from Apple, Amazon and Google parent Alphabet.
The Dow Jones Industrial Average shed 39 points or 0.11 per cent following a poorly-received trading update from Merck and a sharp drop in UnitedHealth.
Tech stocks soared as Meta’s trading update added to confidence after the Federal Reserve signalled the cost of borrowing may be nearing a top. Meta shares jumped 23.28 per cent after the company slashed spending and supercharged a stock buyback. CEO Mark Zuckerberg said 2023 would be a “Year of Efficiency”. The price surge was the share’s largest in a decade.
“Meta is getting its mojo back,” Baird analysts said.
Rate-sensitive growth stocks continued to set the pace after the Fed signalled interest rates may not have much further to rise. The central bank downsized its latest rate hike to 25 basis points and forecast “a couple more”.
The S&P 500 tech sector has rallied more than 14 per cent this year, recouping a large portion of last year’s 28 per cent decline. The Nasdaq Composite is on track for a fifth straight weekly gain, its longest run since November 2021.
“As market conditions shifted in 2022, investors dumped growth stocks, like tech, in favour of value stocks which were deemed more suitable to the challenging environment,” Nigel Green, CEO of the de Vere Group, told MarketWatch.
“But what is happening now, we believe, is the beginning of a rebound,” he said. “First, valuations of tech and other growth stocks are currently low, having been hit by the previous rotation into value stocks. And second, inflation has seemingly peaked and interest rates are set to stabilize, which takes away a major obstacle for tech stocks.”
Merck declined 3.32 per cent as a weak outlook overshadowed an earnings beat. UnitedHealth slumped 5.26 per cent after the government proposed lower medical reimbursements than analysts anticipated.
Australian outlook
The S&P/ASX 200 has a fifth straight weekly advance within reach despite losing momentum this week. After an average weekly gain of 1.6 per cent through January, the index is up a slender 18 points or 0.24 per cent so far this week.
The last three sessions have seen strong early gains dwindle by the close. Yesterday was typical of recent action: the index put on 47 points in early trade, but finished just 9.9 points or 0.13 per cent ahead.
The selling comes as the index nears its 2021 record. Yesterday’s advance lifted the benchmark to within 1.1 per cent of its all-time high.
US sector action suggests today’s strength will come in the growth space. US tech rallied 2.78 per cent. A 6.74 per cent jump in communication services was powered by Meta. Consumer discretionary (Amazon, Tesla) gained 3.08 per cent. Real estate – another rate-sensitive sector – advanced 2.23 per cent.
The two sectors with the biggest weighting here were mixed. Materials declined 0.28 per cent. Financials nudged up 0.18 per cent. Also notably weak were consumer staples -0.86 per cent and energy -2.52 per cent.
How the session plays out will be determined to some extent by the US reaction to earnings this morning from index heavyweights Apple, Amazon and Alphabet. Those three juggernauts have the weighting to move the main indices a long way. Traders will monitor US futures to assess the market’s response.
A 0.5 per cent bounce in the US dollar index helped push the Australian dollar down 0.89 per cent to 70.84 US cents.
The domestic economic calendar is empty today. VGI Partners Asian Investments and Mayfield Childcare report interim earnings.
Commodities
Oil fell for a fifth night following weak demand signals earlier in the week after an unexpected build-up in US inventories. The Energy Information Administration reported a 4.1 million barrel increase, well ahead of analysts’ predictions of a gain of 300,000 barrels.
“The big build in U.S. inventory data hung like an anvil around the market neck,” Stephen Innes, managing partner at SPI Asset Management, said.
Brent crude settled 67 US cents or 0.8 per cent lower at US$82.17 a barrel. The close was the contract’s weakest since January 10.
Iron ore fell to a two-week low after a Chinese government official warned of challenges to exports as global demand wilts under a possible recession. The official said the trading environment was “extremely severe”, according to Reuters.
The most-traded May ore on the Dalian Commodity Exchange fell 3.3 per cent in daytime trade to 841.50 yuan (US$125.29) a tonne.
BHP‘s US-traded depositary receipts slumped 3.64 per cent. The miner’s UK stock shed 1.42 per cent. Rio Tinto dived 5.03 per cent in the US and 2.23 per cent in the UK.
Gold lost its grip on an intraday nine-month high as the US dollar rebounded. Gold for April delivery traded as high as US$1,975.20 before settling US$12 or 0.6 per cent lower at US$1,930.80 an ounce. The NYSE Arca Gold Bugs Index slumped 3.1 per cent.
Copper and aluminium also wilted under the rising greenback. Benchmark copper on the London Metal Exchange fell 0.59 per cent to US$9,033.50 a tonne. Aluminium dropped 0.81 per cent. Nickel gained 3.45 per cent, lead 0.54 per cent, zinc 1.05 per cent and tin 1.76 per cent.
Battery metal miners backed off a two-month high in the US. The Global X Lithium & Battery Tech ETF reversed 0.25 per cent on the New York Stock Exchange. The VanEck Rare Earth/Strategic Metals ETF declined 0.74 per cent.