Goldman Sachs just ejected this stock from its Conviction Buy List

The Morning Wrap

Livewire Markets

Welcome to Charts and Caffeine - Livewire's pre-market open news and analysis wrap. We'll get you across the overnight session and share our best insights to get you better set for the investing day ahead.

MARKETS WRAP

While I'm happy to still write out the market wrap as you all love seeing it, I will also share this picture as I really do think it speaks a thousand words. The top half was before Chairman Jerome Powell spoke at the Jackson Hole Economic Symposium. The bottom half was after the speech had finished. Blood in the streets!

$1.25 trillion was erased from the S&P 500 in eight minutes. Now that's what I call influence. (Source: Lawrence McDonald/The Bear Traps Report)
  • S&P 500 - 4,058 (-3.37%)
  • NASDAQ - 12,142 (-3.94%)
  • DJIA - 32,283 (-3.03%)
  • CBOE VIX - 25.56
  • FTSE 100 - 7,427 (-0.70%)
  • STOXX 600 - 426.09 (-1.68%)
  • US 10YR - 3.034%
  • 2s/10s CURVE - -0.33%
  • USD INDEX - 108.84
  • GOLD - US$1,751/oz
  • WTI CRUDE - US$92.97/bbl
  • SPI FUTURES - 6,922 (-1.48%)

JACKSON HOLE WRAP

US Federal Reserve Chairman Jerome Powell was the headline speaker at last Friday evening's Jackson Hole Economic Symposium. To say he delivered a knockout blow to the markets would be too polite. Not only did he not reveal anything new, the fact he actually wouldn't deliver a pivot that markets so craved for really sent them into a spin.

Several key passages stuck out to me but this is the million-dollar line:

Restoring price stability will likely require maintaining a restrictive stance for some time. The historical record cautions strongly against prematurely loosening policy.

While there was some hope that the Federal Reserve may hint at stopping or slowing the pace of rate hikes into year's end, Powell had other plans. The lines suggest that rates will rise further into 2023, and may not even see cuts next year. All this is to say, hikes are still very much the topic de jour. 

As a result, equities sold off savagely while the bond market was mixed. Yields at the short end of the curve (i.e. shorter-term products) rose while they remained relatively unchanged at the long end (i.e. longer-term products). This, in turn, deepened the ongoing yield curve inversion we've been seeing for some weeks now. And a friendly reminder that yield curve inversions have (near) perfectly predicted every US recession over the last 100 years. 

There will be much more analysis on this historic speech with new contributor Isaac Poole, CIO at Oreana Financial Services posting his piece this week on the website. I highly recommend you read it when it gets published. 

EARNINGS PREVIEW

It's the last week of the August earnings season but it doesn't mean we won't have any big names. On the contrary, some of the biggest names of all will be reporting this week - headlined by such names as Fortescue, Woodside, and Healius. 

  • Monday: A2 Milk (ASX: A2M), Bubs (ASX: BUB), Fortescue Metals (ASX: FMG), Healius (ASX: HLS), Invocare (ASX: IVC), Mineral Resources (ASX: MIN), Oz Minerals (ASX: OZL), Sezzle (ASX: SZL)
  • Tuesday: Harvey Norman (ASX: HVN), IGO (ASX: IGO), Sandfire (ASX: SFR), Temple and Webster (ASX: TPW), Woodside Energy (ASX: WDS)
  • Wednesday: Atlas Arteria (ASX: ALX), DGL Group (ASX: DGL)

This week will also be big for us around here at Livewire. We'll be working on a range of post-reporting season content including a special edition of Buy Hold Sell and an array of exclusive insights. We trust you'll stay tuned!

A WORD ON DIVIDENDS

As it's the last week of August reporting season, I figure we should spend a little bit of time on the global outlook for income. Dividends have been flowing this past month with companies like BHP, South32 (ASX: S32), and Rio Tinto (ASX: RIO) all declaring record payouts. JB Hi-Fi (ASX: JBH), Telstra (ASX: TLS), and Wesfarmers (ASX: WES) all increased their payouts. And Whitehaven Coal (ASX: WHC), Nine Entertainment (ASX: NEC), and Qantas (ASX: QAN) all declared nine-figure buybacks for shareholders to benefit from. 

The long story short is that payouts are very popular for a reason. But even after two years of COVID-19 affecting company dividends, hiking those payouts is still a challenge. This chart from AMP's Diana Mousina shows that 47% of companies have increased their dividend year-on-year. That's nearly 20 points down on this time last year and under the norm for ASX earnings seasons:

Source: AMP

The boost in dividends is also being reflected in the ASX 200 total return index (which, as a reminder, is the ASX 200 plus all dividend reinvestments minus tax.

(Source: Market Index)

Globally, dividends are also achieving fresh records. The Janus Henderson Index recently showed that global dividends have increased by over 11% to over $775 billion in the last quarter alone. Of the companies that index monitors, 94% of them raised payouts or held them steady in the second quarter.

But be warned - in this environment of a strong US Dollar and central bank hikes, movements in the currency mean the value of your dividend (especially if you're invested in companies with overseas payouts) could fluctuate. Either way, we're sure that you'll be counting your dollars all the way to the bank. 

STOCK TO WATCH

Following its full-year earnings report, South32 (ASX: S32) has been removed from Goldman Sachs' conviction buy list. The miner's full-year earnings beat estimates on every single metric. Its outlook also appears rosy with management suggesting they can increase copper production by 14% over the next year. But it's now been taken off the list. As a consolation, it did raise the price target on the stock by 20 cents to $4.70/share. 

Among the other names on the Goldmans conviction buy list includes mining compatriot Iluka Resources (ASX: ILU), Westpac (ASX: WBC), and Woolworths (ASX: WOW).

THE CALENDAR

(Source: Forex Factory)

It's jobs, inflation, and consumer confidence in this week's economic wrap of the world. Before the RBA meets next week, we'll get plenty of prints around the world to whet any macro mind's appetite. Of most note to traders will be the labour force reads out of the US, including the JOLTS (job openings data) and the non-farm payrolls report on Friday. The last of the global PMIs will also trickle through this week - and to wrap it all up, Eurozone inflation. 

Spoiler alert: It's going to be a hot one.

THE CHART

This chart is no crystal ball but when it was shared by Ophir Asset Management, I simply couldn't ignore it. Bank of America has released something called the 'Rule of 20' and it seems to have held up every downturn since 1935.

When the market bottoms, the sum of annual consumer price inflation (CPI) plus the market's trailing price-to-earnings ratio (P/E) is always less than 20.

Will it happen again this time? 

TODAY'S TOP READ

Why Emma Fisher is uncharacteristically 'glass half-empty' on the ASX (Livewire - James Marlay): What do reporting season, peak inflation, market cycles, and contrarian stock picks have in common? This chat with Emma Fisher from Airlie Funds Management, for starters. And it's a good one. I highly recommend sitting through the whole 20 minutes.

Today's report was written by Hans Lee.

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If you have a chart and/or a stat that you would like to see featured in a future edition of the newsletter, drop us a note at content@livewiremarkets.com.

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The Morning Wrap
Markets Wrap
Livewire Markets

Australia's most comprehensive markets wrap is back for 2023, with a fresh look and a new emphasis on getting you and your money ahead of the curve. Available each weekday morning at 8:30am AEDT. Written by Chris Conway, Kerry Sun, and Hans Lee.

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