S&P 500 falls 2.6% in February, gold and copper prices bounce, ASX 200 set to fall

ASX 200 futures are trading 21 points lower, down -0.29% as of 8:20 am AEDT.

The S&P 500 fell -2.6% in February from highs of 2.9%, Target tops earnings expectations but guidance remains weak, Canada's fourth quarter GDP was unexpectedly flat compared to expectations of 0.4% growth, French and Spanish inflation come in hotter-than-expected and a closer look at whether or not the recent rally was a new bull market or a classic bull trap.

Let's dive in.

S&P 500 SESSION CHART

MARKETS

• Another quiet but choppy session where major US benchmarks faded early strength
• Bearish narratives surrounding rate repricing, competition from short-term bills yielding more than 5% and disinflation risks gathering momentum
• Short-term bond funds receive huge inflow as yields hit multi-decade highs (Bloomberg)
• Bullish yen trades mount as traders bet on a BoJ policy turn (Bloomberg)
• Rush to beat rate rises drive $283bn in corporate bond pricings since Jan (Bloomberg)
• US hedge funds' selling of Chinese stocks picks up in February (Bloomberg)

STOCKS

• Goldman Sachs reiterates profit targets, pledges to stop losses at consumer division (FT)
• Apple suppliers are racing to exit China, AirPods maker says (Bloomberg)

EARNINGS

Target (+2.2%): Revenue and earnings beat with comparable sales up an unexpected 0.7% compared to consensus expectations of a 1.7% decline. Current quarter and full-year guidance missed expectations.

• "We're pleased that our business delivered comparable sales growth in the fourth quarter, in ... a very challenging environment. Strength in Food & Beverage, Beauty & Household Essentials offset ongoing softness in discretionary categories." - CEO Brian Cornell
• "For first quarter 2023, the Company expects comparable sales in a wide range, from a low-single digit decline to a low-single digit increase, and an operating income margin rate of 4 to 5 percent."

Zoom (+2.1%): Earnings and revenue beat, full-year revenue guidance was soft but earnings guidance was ahead of analyst estimates.

• "... 27% growth in customers contributing more than $100,000 in trailing 12 months revenue, as well as the 115% trailing 12-month net dollar expansion rate for Enterprise customers." - CEO Eric Yuan

ECONOMY

• Canada's fourth quarter GDP unexpectedly stalled (Reuters)
• French and Spanish inflation hotter-than-expected in February (Bloomberg)
• Japan industrial production falls for first time in three months (Nikkei)
• Australian retail sales rebound after unexpected fall in December (Reuters)
• Collapsing shipping rates set to delay carriers (Reuters)
  
  

Deeper Dive

A new bull market or a classic bull trap

Here's some food for thought about the recent rally and selloff.

S&P 500 above the 200-day: It's S&P 500 traded above its 200-day moving average for around 25 consecutive days between late January and early February. "Going back to 1950, there are no instances where the S&P 500 reached bear market territory (down 20%), rebounded above its 200-DMA for at least one month and went on to make new lows," said Scott Brown, Chief Investment Strategist at Beat the Bench.

Bearish Treasury yields: The US 2-year Treasury yield has hit 4.85%, a level not seen since June 2007. In the past 6 bear markets since 1973, the 2 year yield peaked and fell at least 50 bps before stocks made their ultimate lows for the cycle, according to Bank of America.

Earnings to fall but that's ok: The four strongest rallies for the S&P 500 from bear market lows (since 1950) had negative year-on-year EPS growth as multiples expanded (performance from lows below). Although the negative EPS rallies all occurred when the Fed was cutting rates.

• March 2020 +75%
• March 2009 +69%
• August 1982 +58%
• May 1970 +44%

S&P 500 seasonality: On a separate note, March and April have historically been two of the strongest months for S&P 500 performance (besides November and December).

Sectors to watch

It was another volatile overnight session where the market is struggling to find its footing. This makes sectors to watch rather difficult as you see stocks and/or sectors open in positive territory but eventually morph into a negative close. The market remains extremely selective and bipolar, which makes it rather difficult for position and momentum traders.

Some sectors of interest include:

Gold: Spot prices managed to hold US$1,800 last Friday, now on a two-day winning streak to US$1,827. Most gold names staged an almost vertical drop since February but bounced over the last 1-2 sessions.

Copper: Spot prices experienced an aggressive selloff last Tuesday to Friday, down -6.5% to US$3.95/lb. Copper has recouped roughly half those losses this week, up 3.2% to US$4.07/lb. That said, we've seen some rather depressing half-year results from names like 29 Metals, Sandfire Resources and Aeris Resources, which makes it rather difficult to treat them as copper proxies.