Tech stocks lift in hopes that inflation may be easing

 

Gains in technology helped the Nasdaq Composite skirt losses on Monday as traders added to bets that inflation may be easing. The Nasdaq was the only major index to end the day up as it got boosted by a nearly 6 per cent rally in Tesla shares. The tech-heavy index gained 0.6 per cent.

The Dow Jones Industrial Average dropped 0.3 per cent, as defensive drug stocks like Merck and Johnson & Johnson weighed on the average. The S&P 500 lost 0.1 per cent, but the information technology sector’s 1.1 per cent gain help pare the index’s losses.

Government bonds rallied as a result, with the yield on the two-year Treasury note, which is sensitive to interest rate expectations, falling almost a quarter of a percentage point.

On Monday, the yield on the note slipped a further 0.06 percentage points to 4.20 per cent. Bond yields move inversely to prices.

“The market, at least for 2023, seems a lot more optimistic than how we ended in 2022,” said Chris Zaccarelli, chief investing officer at the Independent Advisor Alliance. “Today is another one of those days where you’re really seeing growth outperform value, and you’re seeing a return to optimism in terms of what might happen for the stock market this year.”

That follows a winning shortened week for the three major indexes, with the Dow and S&P 500 posting their best weeks since November. A chunk of those gains came Friday on the back of labor and service sector data that spurred hopes the economy was contracting enough to appease the Federal Reserve.

Monday marks the fifth trading day of 2023, reminding investors of a classic Wall Street rule that suggests the market will end the year up if stocks perform well in the first five sessions. The S&P 500 has ended the year positive 83 per cent of the times it ended the first five trading sessions up — and with an average gain of 14 per cent, according to the Stock Trader’s Almanac.

The latest consumer credit data showed individuals borrowed more than expected in November, according to Federal Reserve data released Monday afternoon. Individuals borrowed a total of $27.9 billion in the month, which came above the consensus expectation of $25 billion compiled by FactSet. But that marked a decline from October, when individuals borrowed $29.2 billion. The data includes short- and intermediate-term credit extended only to individuals, with the exception of real estate loans.

In sector news, Information Technology, Utilities and Materials were the stars of the session, whilst Health Care and Consumer Staples were the worst performers, dropping by 1.66 per cent and 1.03 per cent per cent respectively.

Investment Bank powerhouse, Goldman Sachs has stated that it will begin cutting up to 3,200 jobs within days, according to a person familiar with the matter, as the Wall Street bank tries to rein in costs in the face of a slowdown in investment banking and a paring back of its consumer bank. The cuts, which represent about 6.5 per cent of its roughly 49,000 workforce, are below the worst-case scenario of 3,900 jobs Goldman chief executive David Solomon and his management team had discussed late last year.

Shares in Coinbase climbed more than 17 per cent Monday afternoon as bitcoin rose 2 per cent to its highest level in almost a month. The rise comes as part of a broader rally in tech stocks as investors bet inflation is easing and scoop up beaten up names. Jefferies also initiated coverage of the crypto services firm, saying it can weather the challenges the market is facing in a difficult macro environment and in recovering from the FTX scandal.

AstraZeneca has agreed to buy US biotech CinCor in a deal worth up to $1.8bn, as the UK pharma group seeks to expand its pipeline of heart and kidney drugs. The Anglo-Swedish drugmaker said on Monday it would pay $26 a share, a 121 per cent premium to CinCor’s closing price on Friday.

Central banks bought a further 50 tonnes of gold on a net basis during November 2022, representing a 47 per cent increase from October’s 34 tonnes, the latest World Gold Council data shows. Of this net total, three central banks accounted for gross buying of 55 tonnes, while two largely contributed to gross sales of 5 tonnes, showing the strength of demand, says WGC. The biggest announcement of the month came from the People’s Bank of China (PBoC), which reported an increase of 32 tonnes, the largest reported purchase in November and the first announced increase in its gold reserves since September 2019.

In other news, Europe currently leads the pack on LNG imports as global competition for fuel heats up.

The data from Refinitiv shows that EU nations imported 101 million tonnes of LNG in 2022, which represents a 58 per cent rise from the previous year. The EU accounted for 24 per cent of global LNG imports during the recorded period. In previous years, the EU lagged behind Japan and China on LNG imports, but Russia’s weaponization of energy since its invasion of Ukraine has forced the bloc to seek alternative fuel supplies.

With Europe’s need to import greater volumes to fill up its storage facilities in 2023, the global LNG market is set to remain tight, potentially pushing up prices for gas users worldwide.

Later in the week, investors will watch for December’s consumer price index report coming Thursday and big bank earnings scheduled for Friday.

The SPI Futures are pointing to a 10 point fall.

Figures around the globe

European markets closed higher. Paris rose 0.68 cent, Frankfurt gained 1.25 per cent and London’s FTSE closed 0.33 per cent higher.

Asian markets closed higher. Tokyo’s Nikkei gained 0.59 per cent, Hong Kong’s Hang Seng gained 1.89 per cent and China’s Shanghai Composite closed 0.58 per cent higher.

Yesterday, the Australian sharemarket added 0.59 per cent to close at 7,151.33.

Ex-dividends

There is one company set to trade without the right to a dividend.

Premier Investments (ASX:PMV) is paying 79 cents fully franked.

Commodities and the dollar

Oil is trading 1.42 per cent higher at US74.82 a barrel.
Gold is trading 0.29 per cent higher at US$1,875.10 an ounce.
Silver is trading 0.93 per cent lower at US$23.76 an ounce.
Copper is trading 2.47 per cent higher at US$400.75 a pound.
Iron ore futures are pointing to a rise of 0.24 per cent.
One Australian dollar is buying 69.13 US cents.

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

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