ASX to open lower after US stocks fell, dashed hopes of a year-end rally

The Australian stock market is expected to open significantly lower this morning after US stocks fell for a second day of thin holiday trading and government bond yields ticked higher as investors count to the end of the worst year for the S&P 500 since 2008.

ASX futures fell 1.2 percent to 6980 at 7:59 a.m. AEDT after Wall Street’s S&P 500 closed 1.2 percent lower, with falls in technology, energy and communications stocks dashed hopes of a year-end rally . The Dow Jones Industrial Average fell 1.1 percent and the Nasdaq fell 1.35 percent. Small company stocks fell even more, dragging the Russell 2000 Index down 1.5 percent.

The S&P 500 shed an early gain after sentiment deteriorated on concerns that the end of China’s zero-COVID policy could lead to a spike in cases around the world. Trading volumes at that time of day were around 20 percent below the 30-day average. The 10-year Treasury yield rose to 3.88 percent and oil plummeted.

Concerns over the spread of China's COVID surge weigh on global markets.

Concerns over the spread of China’s COVID surge weigh on global markets.Credit:Bloomberg

Tech stocks remained under pressure in the US even as Tesla tried to halt a seven-day rout sparked by concerns over slowing demand. A measure for the US dollar erased losses.

Still subdued sentiment is dampening hopes of a rally in the final trading week of 2022 after a brutal year for financial markets. Global equities have lost a fifth of their value, the biggest annualized drop since 2008, and an index of global bonds is down 16 percent collapsed. The US dollar is up 7 percent and the 10-year Treasury yield has risen to over 3.80 percent from just 1.5 percent at the end of 2021 as the Federal Reserve embarked on an aggressive rate hike path to curb inflation.

On Wall Street, the S&P 500 is poised for a roughly 20 percent decline in 2022, while the Dow is headed for a 9 percent decline, even as earnings and margins for S&P 500 companies hit record highs this year. The tech-heavy Nasdaq is faring much worse and is on course to plummet 34 percent.

“We believe investors have become far too pessimistic given our current position in the rate hike cycle,” wrote Nancy Tengler, CEO and chief investment officer at Laffer Tengler Investments.

After one of the fastest rate hike regimes in history, “we expect the economy to slow significantly or enter recession sometime in 2023. Certainly a severe recession would be bearish for equities, given the resilience of the US economy and a tight labor market, we expect a slowdown or a shallow and short recession. That could allow stocks to rally in the second half of 2023.”

In a bid to revitalize Hong Kong as a financial hub, the city will lift some of its last key COVID rules and lift vaccination check and test collection restrictions for travelers. While the easing of COVID restrictions could provide a boost to the global economy, there are concerns over inflationary pressures, which could prompt US policymakers to maintain tight monetary policy. ASX to open lower after US stocks fell, dashed hopes of a year-end rally

Brian Lowry

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