S&P 500 closes at record highs on Wall St rally, Link rated as Hold: ASX to rise

Market Reports

by Melissa Darmawan

Wall St surges for 3rd day on a holiday shortened week amid fresh inflation data and rate hike expectations. Morgans rates Link Administration (ASX:LNK). ASX closes at 2.10pm EST today.

The Australian sharemarket is ready to rise with the Santa rally underway as the major indexes around the globe moved higher.

S&P 500 hits record high on 3rd day rally

Wall St rose for its third straight day with the S&P 500 hitting a new record high on this shortened week.

The market switched into Santa rally mode on Tuesday, after a three-day losing streak for the major averages triggered by fears on the spread of Omicron. It was the worst decline for the S&P over a three-day period since September. While for the Nasdaq, it was the worst three-day run since May.

Investors received a tap of fresh economic data that the Fed watches closely. Starting with a touch point on the labour market.

Weekly jobless claims hold near record lows

Weekly jobless claims were unchanged last week from the week prior holding steady at 205,000 as per the Labor Department. Americans filing for unemployment benefits have been at historic lows for the past few weeks, despite the surge in Covid-19 cases. This is a good sign, a trend that we have been following, however with the holiday season and also concerns around the virus, there could be delays in hiring new staff so it wouldn’t be surprising if this figure flickers for a bit at this pandemic low range.

New home sales climb to 7-month highs

Meanwhile, new home sales jumped to its highest level in seven months in November to 12.4 per cent at 744,000 units according to the National Association of Realtors. It was the fastest rise in seven months and the highest reading since April, but it came in soft as market expectations were at 770,000. So this is a little confusing, it’s hot but soft. But the average sales price was US$416,900, 14.1 per cent higher than a year ago. This is a sign that the housing market remains strong amid the record low interest rates. However it could be set to cool ahead of likely rate hikes.

Inflation rises in Nov, PCE & CPI - the differences

Elsewhere, we receive another measure of inflation based on changes in personal consumption. In November, personal spending rose 0.5 per cent from the prior month and surged 4.7 per cent from November last year. This is the Fed’s preferred inflation gauge.

So it might feel like we are touching on inflation again, and we are but in a different light. A few weeks ago we talked about the consumer price index, CPI. It’s an inflation measure, so you're right on that one, however, the personal consumption expenditures price index, PCE, is a price gauge. It is another inflation indicator which tracks the purchases from consumers each month, i.e. personal spending, while the CPI follows a fixed basket of goods. The Fed prefers to follow the PCE from the Commerce Department in reviewing monetary policy, and making interest rate decisions in an effort to combat inflation. These figures reinforce the Fed's view to move on curbing pricing pressures which they have already started to do with its bond buying program.

Given that we have talked about the rate hike timeline this month, it’s expected to continue with mid March next year being an important month. It’s the central bank’s second policy meeting after late January’s first meeting. Economists are saying that inflation has not peaked yet, so by the end of January, if a rate hike is earmarked in March, we might see some volatility in the market as traders look to price that in.

Elsewhere, Americans' confidence grew according to the University of Michigan index which rose from 67.4 in November to 70.6.

FDA approves Merck anti-viral Covid-19 pill

Let’s switch gears to some company news, Tesla CEO Elon Musk has now sold almost all of his vested stock options that are due to expire in August. Now Musk has sold almost US$15 billion. Shares rallied 5.8 per cent.

Meanwhile, Merck closed 0.6 per cent lower after the FDA gave its nod for the company's anti-viral Covid-19 pill. Clinical trial data found that Merck’s oral pill reduced hospitalizations and deaths by about 30 per cent. This comes a day after the agency authorized Pfizer’s pill equivalent. The FDA authorised Merck's drug for adults with early symptoms of Covid-19 and face the highest risks of hospitalisation. The Whitehouse plans to buy about 5 million doses at about US$700 a pop which requires patients to take four pills twice a day for five days

It looks like concerns about Omicron are starting to wane with market participants focusing on the lack of appetite for lockdowns from the Whitehouse. The emergence of the FDA approvals of the antiviral pills from Pfizer and Merck are giving investors hope. These pills to combat the virus can be taken at home with no injections or IV needed, making it more accessible. There is a shift of tone that the new variant is not likely to derail the economic recovery as severe as expected. Maybe this is the Christmas cheer they need to close off the year.

Wall St gains for 3rd day

At the closing bell, the Dow Jones gained 0.6 per cent to 35,951, the S&P 500 added 0.6 per cent to 4,726 while the Nasdaq closed 0.9 per cent higher at 15,653.

For the week the Dow rose 1.7 per cent, the S&P 500 added 2.3 per cent, while the Nasdaq closed 3.2 per cent higher.

Across the S&P 500 sectors, real estate and utilities were the losers while the rest closed higher. Consumer discretionary, industrials, and materials were the best performers.

The yield on the 10-year treasury note rose 4 basis points to 1.49 per cent, gold rose despite the economic news we just heard on a weaker greenback.

Figures around the globe

Across the Atlantic, European markets closed higher. Paris gained 0.8 per cent, Frankfurt added over 1 per cent and London’s FTSE closed 0.4 per cent higher.

In UK trade, BHP gained over 1 per cent, Rio added 0.2 per cent, while oil giants BP climbed almost 1 per cent and Shell closed 1.2 per cent higher.

Asian markets closed higher. Tokyo’s Nikkei gained 0.8 per cent, Hong Kong’s Hang Seng added 0.4 per cent, while China’s Shanghai Composite closed 0.6 per cent higher.

ASX 200 gains for 3rd day

Yesterday the Australian sharemarket closed 0.3 per cent higher at 7,388 rising for its third straight day.

The local market was led by eight sectors advancing closing marginally near each other. Utilities led the bourse as the best performer, followed by property, and industrials while technology was the biggest decliner of the session.

Market participants also kept tabs on the Covid-19 cases as NSW continues to top the nation with confirmed cases, leading to NSW and Victoria indoor mask mandates emerging while NSW reintroduces QR code check-ins and density limits. This saw the XJO lose momentum but not enough to retreat.

Covid-19 medical players Sonic Healthcare (ASX:SHC), and Australian Clinical Labs (ASX:ACL) extended their rally as testing volumes surged ahead of Christmas closing 1.3 per cent and 2.8 per cent higher, respectively.

Meanwhile, shares in Magellan (ASX:MFG) snapped its losing streak after Hamish Douglass, chief investment officer and chairman reassured investors through a video interview after Monday’s 33 per cent tumble in the company’s share price following the loss of its biggest investment mandate. The mandate with St James’ Place made up about 12 per cent of annual group revenue. The interview comes after MorningStar analysts released a note saying that “these near-term headwinds are bumps in the road, not nails in the coffin. Its investing calibre and upside from growing distribution remain intact” amid a number of brokers downgrading the company’s broker rating, and target price.

The best-performing stock in the S&P/ASX 200 was Magellan Fin Group (ASX:MFG) closing 5.2 per cent higher at $20.96, followed by shares in Nickel Mines (ASX:NIC), and St Barbara (ASX:SBM).

The worst-performing stock in the S&P/ASX 200 was Bega Cheese (ASX:BGA) closing 10.3 per cent lower at $5.04 after the cheese manufacturer said that short term impacts from the pandemic amid a highly competitive milk-buying landscape are expected to impact financial year 2022 earnings. This was followed by shares in WiseTech Global (ASX:WTC), and Afterpay (ASX:APT).

WiseTech Global (ASX:WTC) shares fell 2.6 per cent to $58.67 as the second worst performer after chief executive officer Richard White sold 4.3 million shares as a “small diversification” shift of his personal wealth. His stake in the company fell to 42 per cent, from 43.3 per cent.

The major banks supported the index with modest gains. NAB (ASX:NAB) and ANZ (ASX:ANZ) both added 0.6 per cent, Westpac (ASX:WBC) rose 0.5 per cent, while Commonwealth Bank (ASX:CBA) closed 0.3 per cent higher.

Evolution Mining (ASX:EVN) added 2.3 per cent after they pulled out from its gold-focused joint venture with Enterprise Metals after results from 30 months of exploration "were not sufficient" to continue. The four-year deal started in June 2019 and earmarked Evolution to earn an 80 per cent interest in the project by spending $6 million on exploration.

Miners fell with Fortescue Metals (ASX:FMG) losing 1.4 per cent, while BHP (ASX:BHP) fell 0.3 per cent and Rio Tinto (ASX:RIO) closed 0.1 per cent lower.

SPI futures

Looking ahead this Christmas eve, the SPI futures pointing to a 0.7 per cent gain.

Broker moves

Morgans rates Link Administration (ASX:LNK) as downgrade to hold from add with a price target of $5.50. Link has agreed to be taken over by Dye & Durham at $5.50 per share, beating Carlyle Group's prior bid of $5.38. The broker believes it's a positive outcome for Link shareholders, given recent earnings underperformance. Carlyle is continuing its due diligence so may yet come back with a better bid. Morgan lifts its target to the $5.50 bid price from $5.38 and downgrades its rating as the trading price is already in line. Shares in Link Administration (ASX:LNK) closed 0.2 per cent higher at $5.52 yesterday.

Dividend-pay

There is one company set to pay eligible shareholders today, Maxiparts (ASX:MXI).

IPO

There is one company set to make its debut on the ASX today. Solis Minerals (ASX:SLM) after raising $6 million.

Commodities

Iron ore has gained 0.9 per cent to US$123.75. Its futures point to a 2.9 per cent gain. Its futures point to a 2.9 per cent gain.

Gold gained $7.30 or 0.4 per cent to US$1810 an ounce, silver was up $0.10 or 0.4 per cent to US$22.92 an ounce.

Oil added $1.06 or 1.5 per cent to US$73.82 a barrel and is sitting at 4-week highs.

Currencies

One Australian Dollar at 8:15 AM has strengthened since yesterday, buying 72.47 US cents (Thu: 72.19), 54.02 Pence Sterling, 82.88 Yen and 63.97 Euro cents.

ASX calendar

A housekeeping note, the Aussie sharemarket is closing at 2.10pm AEST today and the ASX will reopen on Wednesday next week.

Personal note

I want to say thank you so much for tuning in every morning here at Finance News Network for the market outlook. I have enjoyed writing and filming these reports, and I hope you have found them valuable.

On behalf of the of the team here at FNN, and the leadership team at Sequoia, we wish you a Merry Christmas. I will see you next Wednesday as we close off the year together. 

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