ASX to open stronger, even as falling tech stocks drag down Wall Street

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Elsewhere, Mercury NZ fell 6.04 percent, followed by Resmed (3.29 percent) and Evolution Mining (3 percent). Healthcare (0.31%) was the only sector that traded in the red at midday.

On Wall Street overnight, the US stock market suffered its longest losing streak since January as a handful of tech giants sold off, despite falling bond yields. The S&P 500 fell 0.6%, extending a drop from its all-time high to more than 4%. Chipmakers bore the brunt of the sell-off after ASML Holding's orders fell. AI chip giant Nvidia led to megacap losses.

The Nasdaq 100 fell 1.2% and the Dow Jones Industrial Average fell 0.1%.

After a 10 percent rally in stocks in the first quarter, the strongest start to the year since 2019, Wall Street investors have grown increasingly skeptical about how far the market could go in the short term, even given the continued strength of the market. US economy.

Just a day after Jerome Powell threw cold water on rate cut bets, bear buyers emerged in the Treasury market, with the two-year yield further below 5 percent and bonds selling at 20 years for 13 billion dollars. The 10-year Treasury yield fell eight basis points to 4.59%.

Powell signaled on Tuesday that policymakers would wait longer than previously expected to cut interest rates after a string of surprisingly high inflation readings. Fed officials penciled in three cuts in forecasts released last month, but investors are now betting on just one or two this year, futures markets show.

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“Fed Chairman Powell was downright hawkish,” said Win Thin and Elias Haddad of Brown Brothers Harriman. “The Fed wants the market to do the tightening for them. Financial conditions remain too loose, so a combination of higher yields, wider spreads, a stronger dollar and lower equities is needed to tighten conditions” .

Shares of Donald Trump's Trump Media & Technology Group soared to recoup some of the billions in market value it lost in the three weeks since its debut as a public company. United Airlines rose after the company forecast better-than-expected profit this quarter, easing concerns that Boeing jet delays and regulatory pressure could put expansion plans at risk.

Meanwhile, President Joe Biden vowed to maintain American ownership of United States Steel Corp and called for higher tariffs on Chinese steel and aluminum as he sought to woo union workers ahead of the November election.

While global stocks face tactical headwinds, this is just a consolidation phase and stocks are expected to continue rising this year, according to UBS strategists led by Andrew Garthwaite.

They noted positive developments such as artificial intelligence boosting productivity and earnings, lower guaranteed capital risk premium, likely falling labor costs and fewer concerns about margin pressures.

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The risk premium for US stocks, a measure of the spread between expected returns on stocks and bonds, is now in negative territory, not seen since the early 2000s.

While this is not necessarily a negative indicator for the stock market, it all depends on the business cycle. The lower ERP can be seen as a promise of a future boost in corporate profits, but also that a bubble is forming.

Fundamentals and technical trends in equity markets still look favorable, suggesting the recent pullback should be temporary, according to HSBC strategists led by Max Kettner, who are using the decline to add to their bullish position.

According to Morgan Stanley strategists, US corporate earnings are set for a “healthier track” through 2024 and investors are increasingly confident that companies can meet expectations.

The market is watching earnings slip in the first quarter before recovering sequentially in the second quarter and eventually expanding in the back half of the year, they wrote.

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