Wall St mixed led by losses in tech, UBS rates Pexa as buy: ASX to rise

Wall St closes mixed after strong gains the day prior amid US CDC cuts isolation period from 10 days to 5 days. The ASX is ready to play catch up rally. UBS initiated coverage for Pexa (ASX:PXA) as a buy.

The Australian sharemarket is ready to rally after major indexes around the globe closed higher. The local bourse had a two day rest and is ready to play catch up after Wall St saw a mixed close.

Dow’s 5-day winning streak on tech drag

The S&P 500 retreated from its 69th record close as rotation into value stocks lifted the Dow as the outperformer. Wall St changed gears led by a decline in tech shares after we saw the opposite the day prior. The Nasdaq added a nice 1.4 per cent gain on Monday but today, we saw a small pull back.

On the other hand, the Dow rose for its fifth straight day as investors look to value stocks over growth. What I mean by that, is that value stocks are companies that are trading below their intrinsic value. In other words, they appear to be underpriced, undervalued in their fundamentals but have the potential to generate revenue. Fundamentals include financial ratios such as price-to-earnings, and debt-to-equity to name a few.

Value versus growth stocks

On this backdrop, investors are reviewing the factors that drove the underperformance of value stocks and the outperformance of growth. These include inflation, interest rates, company earnings, and overall equity market movement.

It appears that the running streak of the Dow could have been triggered by the changes that are underway by the Fed. The first meeting is in January but eyes are on its second meeting in March where the central bank could unveil the timing on when interest rates will hike.

With market factors set to change, along with the company’s overall balance and its potential appreciation, buying into value stocks is one investment strategy and could help you understand the Dow’s winning moves of late.

Meanwhile, we are light on economic news both on Wall St and also locally. So if you’re like most people right now, on holidays, if you’re keen, you could read over the RBA meeting minutes that were released last week to the backdrop of the never ending pour of Omicron headlines.

CDC cuts Covid-19 isolation time to 5 days

On Monday, the Centers for Disease Control and Prevention, the CDC cut the recommended isolation period for some people who test positive, a move to minimize disruptions. It will be interesting to see if our health officials look to take this lead.

Nevertheless, a key stand out for me in the meeting minutes was Governor Philip Lowe saying that “the Omicron strain is a new source of uncertainty, but it is not expected to derail the recovery”. The RBA is expecting the economy “to return to its pre-Delta path in the first half of 2022”. Until we get some strong local economic news, our Aussie dollar is going to remain “steady”.

Still, many economists have lowered their forecasts for economic growth in the first quarter of next year around the globe as we see restrictions enforced to try to curb the spread of Omicron.

Wall St’s muted moves as Dow shines

At the closing bell, the Dow Jones gained 0.3 per cent to 36,398, the S&P 500 lost 0.1 per cent to 4,785 while the Nasdaq closed 0.6 per cent lower at 15,782.

Across the S&P 500 sectors, information technology led the decline just like the Nasdaq was the under performer. Energy also shed amid concerns about the spread of the Omicron variant versus fuel demand. While on the winning front, cyclicals rallied. Utilities led the gains, followed by consumer staples, and materials.

The yield on the 10-year treasury note was unchanged, gold fell by a hairline on a steady greenback. The moves overall are quite muted.

European markets gains despite Omicron surge

Across the Atlantic, European markets closed higher despite the surge in Omicron cases in Spain and Britain. Paris gained 0.6 per cent amid tightened measures to curb the spread but Parisians will enjoy New Year’s Eve with no curfew, Frankfurt added 0.8 per cent and London’s FTSE was closed.

BHP lost 1.3 per cent, Rio and BP closed flat, Shell closed 0.3 per cent lower.

Asian markets gains on China liquidity injection

Asian markets closed higher amid China’s injection of short-term cash into the banking system to the highest in two months, with demand for liquidity climbing before year-end. This comes after the PBOC reduced the reserve-requirement ratio earlier this month, a move to help China’s economic recovery.

Tokyo’s Nikkei gained 1.4 per cent, Hong Kong’s Hang Seng added 0.2 per cent, while China’s Shanghai Composite closed 0.4 per cent higher.

ASX 200 gains on Christmas eve

On Friday, Christmas eve, the Australian sharemarket closed 0.4 per cent higher at 7,420 capping a holiday-shortened week. The local bourse closed at its highest level since mid November with gains almost across the board with consumer staples as the outlier.

Communication services led the gains, thanks to Telstra (ASX:TLS) followed by energy, and consumer discretionary. Over the week it closed 1.6 per cent higher.

Shares in Telstra (ASX:TLS) closed 0.7 per cent higher to $4.15, its highest closing price since August 2017, putting Telstra’s year-to-date gains at 37 per cent. You might be wondering, what has prompted this rally? Firstly, there have been a few brokers that have a bullish view on the company with the key focus around the telco focusing on the mobile network quality. Management affirmed a target of 95 per cent 5G population coverage and more than 80 per cent of network traffic to be on 5G by 2025 at their investor day at the end of November. Also, like many companies we have seen, Telstra is buying back their own shares which could also be contributing to the lift to the share price.

The light trading day was dominated by takeover news from AMP (ASX:AMP). The wealth giant agreed to sell its infrastructure debt unit to US private equity giant Ares Management for $428 million. To put this news into context, the announcement comes ahead of their demerger slated for the first half of next year. Last month, the wealth giant recognised impairment charges of $325 million, and prior to that, it completed the sale of its life insurance business to UK-based Resolution.

The news sent the share price soaring as the best performer of the session closing 6.4 per cent higher at $1.00, its best performance in almost a month, a sign of support given its decline we have seen for months. It was followed by shares in Allkem (ASX:AKE), and Pilbara Minerals (ASX:PLS).

The session laggards were St Barbara (ASX:SBM), closing 2.4 per cent lower at $1.41, followed by shares in Reliance Worldwide (ASX:RWC), and Life360 Inc (ASX:360).

The fall in Life360 shares, which is a family locator app, like a GPS tracker, has extended a tumble that started in November after hitting a record high of $13.65.

Across the resources list, Fortescue Metals (ASX:FMG) added 1 per cent, BHP (ASX:BHP) rose 0.4 per cent, and Rio Tinto (ASX:RIO) closed 0.2 per cent higher. Santos (ASX:STO) added 1.8 per cent and Woodside Petroleum (ASX:WPL) closed 0.3 per cent higher.

Major banks closed higher with NAB (ASX:NAB) rose 0.9 per cent, Commonwealth Bank (ASX:CBA) gained 0.7 per cent, Westpac (ASX:WBC) added 0.5 per cent while ANZ (ASX:ANZ) closed 0.4 per cent higher.

SPI futures

Looking ahead, the SPI futures are pointing to a 0.6 per cent gain.

Company news

Michael Hill (ASX:MHJ) has seen a recovery since the first quarter update in October. The retail jewellery group expects to see earnings before interest and taxes to come in higher than the $44.6 million in the previous corresponding period in financial year 2021. The latest update comes after its first quarter report in October which showed trading for the 13-weeks to September 26 period delivered double digit same store sales growth. Shares in Michael Hill (ASX:MHJ) closed 0.4 per cent lower at $1.14 on Friday.

Broker moves

UBS has initiated coverage for Pexa (ASX:PXA) rating the company as a buy with a price target of $20.50. The broker believes that the property settlement platform is a globally unique financial infrastructure firm. Since the company has digitized the vast majority of Aussie conveyancing transactions, the company is now eyeing offshore expansion. UBS’ view is underpinned on its success in the UK. The broker estimates that it will lift the financial year 2024 performance by 25 per cent above its prospectus forecast. Shares in Pexa Group (ASX:PXA) closed 2.3 per cent higher at $18.77 on Friday.

Ex-dividend

There are four companies trading ex-dividend today

CD Private Equity I (ASX:CD1) is paying 23.5 cents unfranked
CD Private Equity II (ASX:CD2) is paying 35.5 cents unfranked
CD Private Equity III (ASX:CD3) is paying 53 cents unfranked
Fat Prophets (ASX:FPP) is paying 3 cents unfranked

Dividend-pay

There is one company set to pay eligible shareholders today, Grange Resources (ASX:GRR).

Commodities

Iron ore last traded at US$117.70. Its futures point to a 0.8 per cent fall.

Gold lost $2.60 or 0.1 per cent to US$1806 an ounce, silver was up $0.07 or 0.3 per cent to US$23.06 an ounce.

Oil added $0.39 or 0.5 per cent to US$75.96 a barrel.

Currencies

One Australian Dollar at 8:15 AM has weakened since Friday, buying 72.28 US cents (Fri: 72.47), 53.83 Pence Sterling, 82.99 Yen and 63.92 Euro cents.