Solid earnings and weaker $US fuel market rally: Lithium stocks leading the charge

US equities were sharply higher in Tuesday trading, ending near session high, as traders bet on strong corporate earnings reports and wagered that markets have found a bottom.

The Dow Jones Industrial Average jumped 754.44 points, or 2.43 per cent, to 31,827.05 — closing near the highs of the session as gains accelerated in the final hour of trading. The S&P 500 gained 2.76 per cent to 3,936.69. The Nasdaq Composite rose 3.11 per cent to 11,713.15.

All three major averages are above their 50-day moving averages for the first time since April. The broader market index has gained almost 7.4 per cent off its June 16 closing low.

Investor sentiment has worsened to a point that some on Wall Street believe markets are set up for a relief rally ahead. The latest Bank of America survey of professional investors on Tuesday found investors showing dire levels of investor pessimism, with expectations for global growth at all-time lows, cash levels highest since 9/11. The survey found that the allocation to stocks in portfolios is at its lowest since October 2008, one month after the collapse of Lehman Brothers.

A pullback in the dollar aided the rally. This was particularly the case for shares of tech companies with large portions of foreign sales that are taking earnings hits from the impact of the strong greenback this year.

Meanwhile, stocks absorbed a weaker-than-expected print in US housing starts, which fell 2 per cent in June to a seasonally adjusted annual rate of 1.559 million units.

All sectors in the S&P 500 were higher Tuesday. Communication services and industrials led the gains, rising more than 3 per cent.

Solid earnings reports boosted the shares of many companies, even as a stronger dollar weighed on the results of others. Bank stocks outperformed with shares of Goldman Sachs up 5.6 per cent. Bank of America rose 3.4 per cent and Wells Fargo advanced 4.2 per cent – of note there has been no US Banks to downgrade earnings as yet.

Meanwhile, shares of Halliburton climbed 2.1 per cent as sharply rising oil prices this year helped lift profits for the oilfield services company in its most recent quarter.

As of Tuesday morning, roughly 9 per cent of S&P 500 companies have reported calendar second-quarter earnings. Of those, about two-thirds have beaten analyst expectations, FactSet data shows.

Shares of Netflix popped 5.6 per cent ahead of the streaming company’s earnings report scheduled for after the close. Later in the week, Tesla, United Airlines, American Airlines, Snap, Twitter and Verizon are among those scheduled to report.

The Russell 2000 a benchmark index for small-cap stocks made up of the 2,000 smallest stocks in the broad Russell 3000 jumped 3.5 per cent to close at 1,799.33. That was its biggest one-day rise since Jan. 6, 2021.

Of note lithium stocks continue to outperform as the demand /supply dynamic continues to play out despite volatile equity markets. Data from the Shanghai Metals Market showed that demand for battery grade lithium carbonate increased during July as downstream battery factories and auto manufacturers increased their operating rates. At the same time, battery producers reported lower inventory readings as raw material purchases were not able to keep up with battery output.

The higher output followed the rewarding of cash subsidies by local Chinese governments for consumers replacing petrol cars with new EV purchases. The measures were placed to revamp activity in the sector after demand for durable goods plummeted during the strict Covid lockdowns, in addition to contributing to China’s goal of cutting carbon emissions.

Of course Australia is set to maintain its dominance in mined lithium production this decade, as supply is set to double by 2030, data from Benchmark’s Lithium Forecast shows we are set to mine nearly half of the world’s lithium this year.

Lithium stocks in the US followed the strong lead on the ASX yesterday – it will be interesting to watch whether a short squeeze plays out in the sector if markets continue to rally.

Gold inched higher on Tuesday, helped by a pullback in the dollar, as investors braced for clues on the pace of interest rate hikes from major central banks this month.

Gold was expected to have a strong year, based on its history as a hedge against inflation. However, that hasn’t turned out to be the case, with gold futures down 6.4 per cent for the year-to-date.

So what’s pulling gold lower? The US dollar of course. The US dollar index is up 12.4 per cent for the year-to-date to trade at levels not seen since 2002, and that is creating a drag on gold. A pullback in the US dollar overnight alleviated some of the pressure we have seen across the commodity complex and gold.

One Australian dollar at 7:10 AM has strengthened compared to the US dollar yesterday, buying 69.02 US cents (Tue: 68.16 US cents), 57.49 Pence Sterling, 95.36 Yen and 67.46 Euro cents.

Iron ore is 4.4 per cent lower at US$96.45 a tonne. Iron ore futures are pointing to a 0.8 per cent fall.

Silver was down $0.13 or 0.7 per cent to US$18.71 an ounce.

Copper was down $5.50 or 1.6 per cent to US$329.10 a pound.

Oil gained $1.62 or 1.6 per cent to US$104.22 a barrel.

Bitcoin futures up 8.8 per cent.

The SPI futures are pointing to a 1.2 per cent gain.
 
Figures around the globe

Across the Atlantic, European markets closed higher. Paris added 1.8 per cent, Frankfurt gained 2.7 per cent and London’s FTSE closed over 1 per cent higher.

Asian markets closed mixed. Tokyo’s Nikkei gained 0.7 per cent, Hong Kong’s Hang Seng fell 0.9 while China’s Shanghai Composite closed flat.

Yesterday, the Australian sharemarket fell 0.6 per cent to 6,650.

Ex-dividends

There are four companies set to trade without the right to a dividend.

Alternative Investment Trust (ASX:AIQ) is paying 0.41 cents unfranked
Katana Capital (ASX:KAT) is paying 0.5 cents fully franked
Kelly Partners Group Holdings (ASX:KPG) is paying 0.3993 cents fully franked
Plato Income Maximiser (ASX:PL8) is paying 0.55 cents fully franked

Dividends payable

There is one company set to pay eligible shareholders today.

Ophir High Conviction Fund (ASX:OPH)

Sources: Bloomberg, FactSet, IRESS, Trading Economics