Retail earnings support market as tech layoffs continue beyond Twitter

 

Stocks rose Tuesday as Wall Street looked past tightening covid policies in China to instead focus on a host of strong earnings reports and the potential for smaller future rate hikes during a holiday-shortened trading week.

There’s confusion coming out of China in regards to COVID – China saw its first deaths in the mainland from Covid since May over the weekend prompting fears among investors that the country could bring back restrictions meant to slow the virus spreading.

Against this, just a week ago the country began to ease some of its tight covid measures, on its way to a looser policy

Investors also weighed comments from Cleveland Fed President Loretta Mester who said recent inflation data is promising and that she’d support reduced interest rate hikes going forward. That could mean that the Fed gets to its terminal rate, between 4 per cent and 5 per cent, soon

Overnight the Dow Jones Industrial Average climbed 398 points, or 1.18 per cent. The S&P 500 rose 1.36 per cent and the Nasdaq Composite 1.36 per cent.

Stocks were helped by easing bond yields as investor attention turned toward 2023. 

US retailers remain the best performers post encouraging earnings results – overnight Best Buy was up 12 per cent, Abercrombie & Fitch gaineed 20 per cent, Ralph Lauren, Bath & Body works all outperformed their benchmarks.

Which is not quite the same rhetoric we saw on the ASX yesterday with Best & Less down 13 per cent on a poor earnings result.

On the flip side, Zoom fell 5.4 per cent and Dollar Tree slipped about 9 per cent after reporting disappointing earnings and a lower-than-expected outlook.

Elon Musk says he’s done laying off people at Twitter after the latest round of cuts yesterday, but worries persist about everything from data security to the platform’s ability to moderate content after he sliced through the work force. Musk laid off sales staff but at an employee meeting said he wasn’t planning any more job cuts. Even so, worries persist about Twitter’s ability to function since he has got rid of about half of the 7,500 employees and 1,200 more resigned. Advertisers continue to pause their use of the service, despite Musk’s attempts to alleviate their concerns since his takeover. And rival tech firms are looking to poach disgruntled staff. Despite the shrinking of Twitter, surprisingly the share price is on year to date highs.

Across the sectors the market is seeing broad strength with just a few pockets of weakness:

In after market news, Hewlett Packard has just announced its plans to layoff between 4000-6000 employees globally over the next three years. This continues a trend of layoffs – beyond just Twitter – that has been sweeping the tech sector, including big names like Meta, Amazon, Shopify and Netflix. 

The widespread downsizing has been driven by a hiring spree during the pandemic lockdowns and the concerning economic headwinds ahead. For investors, it means that investing in tech has become more difficult than it used to be.

In commodity news, iron ore prices are gathering pace primarily due to China's efforts to stimulate the economy along with the relaxation of some of the strict zero covid measures that have impacted growth this year. Additionally, there is optimism that steel-intensive sectors such as construction and infrastructure will accelerate next year.

Futures

The SPI futures are pointing to a 0.9 per cent gain.

Currencies

One Australian dollar at 8:10 AM has strengthened compared to the US dollar yesterday buying 66.49 US cents (Tue: 66.03US cents)

Commodities

Iron ore futures are pointing to a 1.9 per cent fall.

Gold added 0.1 per cent. Silver gained 1.1 per cent. Copper rose 1.2 per cent and oil added 1.5 per cent.

Figures around the globe

Across the Atlantic, European markets closed higher. Paris added 0.4 per cent, Frankfurt gained 0.3 per cent and London’s FTSE closed over 1 per cent higher.

In Asian markets, Tokyo’s Nikkei added 0.6 per cent, Hong Kong’s Hang Seng dropped 1.3 per cent and China’s Shanghai Composite closed 0.1 per cent higher.

Yesterday, the Australian sharemarket gained 0.6 per cent to close at 7181.

Ex-dividends

Embark Education (ASX:EVO) is paying 3.201 cents 85 per cent franked
US Student Housing REIT (ASX:USQ) is paying 1.18 cents unfranked

Dividends payable

Brickworks (ASX:BKW)
Janus Henderson Group PLC (ASX:JHG)

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.

Disclaimer

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