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US stocks mixed as yields strengthen, ASX to drop - 03/10/23

Market Wrap

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  • 8 out of 11 sectors in the S&P 500 finished lower, with Utilities and Energy, leading losses, down 4.72% and 1.33%, respectively. The three growth sectors, including Consumer Discretionary, Technology, and Communication Services, outperformed as mega-cap tech companies were mostly higher.
  • Utility stocks were hurt the most, down 4.7% by the rampant bond yields, as these companies usually have high debt levels and are more vulnerable to rising interest rates. The sector is down 20% year-to-date to a three-year low. The renewable energy asset owner NextEra Energy Partners’ shares slumped 9% following a downgrade last week.
  • Tesla’s shares were steady, despite a disappointing electric car delivery number in the third quarter. The EV maker delivered 435,059 electric vehicles, lower than an estimated 461,640 by Wall Street, and was down from 466,140 in the previous quarter. But the number still represents a 26.5% increase from the same period last year. According to the company’s statement: “A sequential decline in volumes was caused by planned downtimes for factory upgrades, as discussed on the most recent earnings call,” and the 2023 target volume remains at 1.8 million cars. 
  • Gold futures were slashed further by the rising bond yields and a nearly one-year high USD. The precious metal may continue the downtrend, heading off potential support of around 1,800.
  • Crude oil extended a three-day losing streak to under 90 amid risk-off trade, ahead of the OPEC meeting. A strong US dollar and the jumping US bond yields pressed on oil markets, while OPEC+ is expected to maintain production. Oil may have been overbought in the past two months, and a technical correction may also have been the cause of the drop. 
  • Bitcoin briefly popped above 28,000. Cryptocurrencies may have initially been boosted by optimism as the US avoided a government shutdown temporarily. However, the rampant bond yields pressured risk assets and caused Bitcoin to retreat from the intraday high of 28,500.

 

Equities

Tumbling utilities stocks weighed on the S&P 500 as investors dumped dividend-paying shares in favor of less-risky and higher-yielding U.S. Treasurys.

Shares in the S&P 500's utilities segment dropped 4.7%, marking their worst session since the early days of 2020's Covid-19 lockdown.

The broader S&P 500 ended less than 0.1% higher despite the sell-off in utilities. Meanwhile, the Dow Jones Industrial Average fell 0.2%. The tech-heavy Nasdaq Composite added 0.7%.

The Russell 2000 index of smaller companies declined 1.6% to turn negative year to date.

Utilities, which are usually considered among the safest bets in the stock market and offer some of the highest dividends, have shed 20% this year, the worst performing sector in the index.

"You have to compare their yield to what you can get from a risk-free asset in government bonds," said Gregg Abella, chief executive of New Jersey money manager Investment Partners Asset Management. "As that gets repriced, it's hard to know where the bottom is."

Earlier Monday, Japan's Nikkei Stock Average was dragged 0.2% lower by tech and energy stocks, as the initial enthusiasm over the U.S. government avoiding a shutdown and a strong Bank of Japan corporate-sentiment survey dissipated.

Australia's S&P/ASX 200 index also lost 0.2% ahead of the first meeting of the country's central bank under its new governor. Markets were open despite much of Australia enjoying a public holiday, including New South Wales. Traders will return Tuesday for the RBA meeting, at which the central bank is expected to keep interest rates on hold at 4.10%.

New Zealand's NZX-50 index gave back 0.5%, led lower by cancer-diagnostics provider Pacific Edge amid U.S. regulatory headwinds.

Markets in China were shut for the Golden Week holiday.

 

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Movers & Shakers

Broker Upgrades / Downgrades

(ABB) Aussie Broadband Price Target Raised 8.1% to A$4.15/Share by Ord Minnett
(IEL) IDP Education Initiated with A$18.00/Share Price Target by Jefferies
(LTR) Liontown Resources Price Target Cut 4% to A$1.35/Share by Goldman Sachs
(M7T) Mach7 Technologies Initiated with A$1.15/Share Price Target by Wilsons
(WBC) Westpac Price Target Cut 2.4% to A$20.10/Share by Morgan Stanley
(WTC) WiseTech Global Price Target Cut 14% to A$73.80/Share by Citi

 

Commodities

Oil futures headed lower, easing back after posting monthly and quarterly gains.

Analysts warned of "overbought" conditions in the market after oil prices touched their highest levels of the year in recent days, but expectations for a further tightening of supply continue to provide some support for prices.

West Texas Intermediate crude for November delivery fell 2.2% to settle at $88.82 a barrel on the New York Mercantile Exchange. December Brent crude finished down 1.6% at $90.71 a barrel on ICE Futures Europe.

Oil has had a really good run this summer on the back of demand holding up, and also showing signs of strength, while supply remains somewhat constrained, said Colin Cieszynski, chief market strategist at SIA Wealth management.

"That being said, it has also become technically overbought on several measures, and a correction appears to be starting with an overnight bounce fading and the price falling under its own weight for the moment, " he added.

Gold prices fell for a sixth consecutive session, posting their lowest settlement since March.

Front month Comex gold futures for October delivery lost nearly 1% to settle at $1830.

Gold remains under pressure, amid worries of further hikes from the Federal Reserve, which have pushed Treasury yields and the dollar higher.

"The higher-for-longer narrative we have seen with regard to Fed monetary policy has weighed on sentiment for gold," ING said in a note, adding that gold ETF holdings have seen 18 consecutive weeks of declines.

 


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