Tag: Economic Performance/Indicators

These 11 stocks can lead your portfolio’s rebound after the S&P 500 ‘earnings recession’ and a market bottom next year

This may surprise you: Wall Street analysts expect earnings for the S&P 500 to increase 8% during 2023, despite all the buzz about a possible recession as the Federal Reserve tightens monetary policy to quell inflation.

Ken Laudan, a portfolio manager at Kornitzer Capital Management in Mission, Kan., isn’t buying it. He expects an “earnings recession” for the S&P 500
SPX,
+2.78%
— that is, a decline in profits of around 10%. But he also expects that decline to set up a bottom for the stock market.

Laudan’s predictions for the S&P 500 ‘earnings recession’ and bottom

Laudan, who manages the $83 million Buffalo Large Cap Fund
BUFEX,
-2.86%
and co-manages the $905 million Buffalo Discovery Fund
BUFTX,
-2.82%,
said during an interview: “It is not unusual to see a 20% hit [to earnings] in a modest recession. Margins have peaked.”

The consensus among analysts polled by FactSet is for weighted aggregate earnings for the S&P 500 to total $238.23 a share in 2023, which would be an 8% increase from the current 2022 EPS estimate of $220.63.

Laudan said his base case for 2023 is for earnings of about $195 to $200 a share and for that decline in earnings (about 9% to 12% from the current consensus estimate for 2022) to be “coupled with an economic recession of some sort.”

He expects the Wall Street estimates to come down, and said that “once Street estimates get to $205 or $210, I think stocks will take off.”

He went further, saying “things get really interesting at 3200 or 3300 on the S&P.” The S&P 500 closed at 3583.07 on Oct. 14, a decline of 24.8% for 2022, excluding dividends.

Laudan said the Buffalo Large Cap Fund was about 7% in cash, as he was keeping some powder dry for stock purchases at lower prices, adding that he has been “fairly defensive” since October 2021 and was continuing to focus on “steady dividend-paying companies with strong balance sheets.”

Leaders for the stock market’s recovery

After the market hits bottom, Laudan expects a recovery for stocks to begin next year, as “valuations will discount and respond more quickly than the earnings will.”

He expects “long-duration technology growth stocks” to lead the rally, because “they got hit first.” When asked if Nvidia Corp.
NVDA,
+6.14%
and Advanced Micro Devices Inc.
AMD,
+3.69%
were good examples, in light of the broad decline for semiconductor stocks and because both are held by the Buffalo Large Cap Fund, Laudan said: “They led us down and they will bounce first.”

Laudan said his “largest tech holding” is ASML Holding N.V.
ASML,
+3.79%,
which provides equipment and systems used to fabricate computer chips.

Among the largest tech-oriented companies, the Buffalo Large Cap fund also holds shares of Apple Inc.
AAPL,
+3.09%,
Microsoft Corp.
MSFT,
+3.88%,
Amazon.com Inc.
AMZN,
+6.63%
and Alphabet Inc.
GOOG,
+3.91%

GOOGL,
+3.73%.

Laudan also said he had been “overweight’ in UnitedHealth Group Inc.
UNH,
+1.77%,
Danaher Corp.
DHR,
+2.64%
and Linde PLC
LIN,
+2.25%
recently and had taken advantage of the decline in Adobe Inc.’s
ADBE,
+2.32%
price following the announcement of its $20 billion acquisition of Figma, by scooping up more shares.

Summarizing the declines

To illustrate what a brutal year it has been for semiconductor stocks, the iShares Semiconductor ETF
SOXX,
+2.12%,
which tracks the PHLX Semiconductor Index
SOX,
+2.29%
of 30 U.S.-listed chip makers and related equipment manufacturers, has dropped 44% this year. Then again, SOXX had risen 38% over the past three years and 81% for five years, underlining the importance of long-term thinking for stock investors, even during this terrible bear market for this particular tech space.

Here’s a summary of changes in stock prices (again, excluding dividends) and forward price-to-forward-earnings valuations during 2022 through Oct. 14 for every stock mentioned in this article. The stocks are sorted alphabetically:

Company	Ticker	2022 price change	Forward P/E	Forward P/E as of Dec. 31, 2021
Apple Inc.	AAPL, +3.09%	-22%	22.2	30.2
Adobe Inc.	ADBE, +2.32%	-49%	19.4	40.5
Amazon.com Inc.	AMZN, +6.63%	-36%	62.1	64.9
Advanced Micro Devices Inc.	AMD, +3.69%	-61%	14.7	43.1
ASML Holding N.V. ADR	ASML, +3.79%	-52%	22.7	41.2
Danaher Corp.	DHR, +2.64%	-23%	24.3	32.1
Alphabet Inc. Class C	GOOG, +3.91%	-33%	17.5	25.3
Linde PLC	LIN, +2.25%	-21%	22.2	29.6
Microsoft Corp.	MSFT, +3.88%	-32%	22.5	34.0
Nvidia Corp.	NVDA, +6.14%	-62%	28.9	58.0
UnitedHealth Group Inc.	UNH, +1.77%	2%	21.5	23.2
Source: FactSet

You can click on the tickers for more about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information available free on the MarketWatch quote page.

The forward P/E ratio for the S&P 500 declined to 16.9 as of the close on Oct. 14 from 24.5 at the end of 2021, while the forward P/E for SOXX declined to 13.2 from 27.1.

Don’t miss: This is how high interest rates might rise, and what could scare the Federal Reserve into a policy pivot

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October 17, 2022

Weekend reads: The Federal Reserve gets a lot of flak for inflation, but it has actually hit its target recently
The U.S. stock market benchmark rebounded from a steep loss on the day when the government published hot inflation numbers.

The S&P 500 Index ended Thursday with a 2.6% gain after investors took a closer look and saw a significant improvement from July through September, as Rex Nutting explained.
The whipsaw action wasn’t limited to stocks, and was described by Rick Rieder, the chief investment officer for global fixed income at BlackRock, as “one of the craziest days” of his career.

The bond market’s warning

Some investors who focus on stocks might not realize that the bond market is much larger, and that its movements can cause government and central-bank policies to shift. Larry McDonald, founder of The Bear Traps Report and author of “A Colossal Failure of Common Sense,” which described the 2008 failure of Lehman Brothers, explained just how bad the action was in the U.K. bond market over the past few weeks, when 30-year government bonds issued in December traded as low as 24 cents on the dollar. He also predicted what will happen if the Federal Reserve continues on its current course of interest-rate increases.

Related outlooks for interest rates:

Fed’s benchmark interest rate may peak above 5% after Sept inflation data, some economists think

This is how high interest rates might rise, and what could scare the Federal Reserve into a policy pivot

Bullish signs for long-term stock investors

Getty Images

Michael Brush argues the Federal Reserve is moving too quickly to raise interest rates and cool the U.S. economy. He expects a rapid decline in inflation and a new bull market for stocks. In a column, he shares five sentiment indicators that suggest it is time to buy stocks — especially this group of companies.

More: Here’s how you’ll know stock-market lows are finally here, says the legendary investor who called 1987 crash

Don’t forget to look over your portfolio

Beth Pinsker explains how to make sure your investments are best diversified to fit your needs during time of uncertainty in all financial markets.

Read on: $22 billion in I-bond sales can’t be wrong. Why you may want to buy them even when their rate resets soon

Time for a refreshing COLA if you are on Social Security

Getty Images

The Social Security Administration has announced that its cost-of-living adjustment (COLA) for 2023 will be 8.7%, the largest increase in four decades. There is more to the story, including tax implications and changes to Medicare, as Jessica Hall and Alessandra Malito explain.

Related: Can I stop and restart Social Security benefits?

Pay attention to Medicare open enrollment

Getty Images/iStockphoto

Medicare’s annual open enrollment season runs from Oct. 15 to Dec. 7. The majority of Medicare recipients don’t review their plans each year, which can cost them a lot of money. Here’s how to approach Medicare’s 2023 enrollment period.

You won’t like this ‘new normal’ for the housing market

West Coast housing markets are already seeing price declines as mortgage loan rates hit 7%.

Stefani Reynolds/Agence France-Presse/Getty Images

Freddie Mac said interest rates on 30-year mortgage loans averaged 6.92% on Oct. 13, up from 3.05% a year earlier. Mortgage Daily said rates had hit 7.10% — the highest in 20 years — and economists are warning these levels could be a “new normal.”

A homeowner locked-in with a low interest rate on their mortgage loan will be reluctant to sell. And some would-be buyers may now be priced out of the market because of much higher loan payments. Here’s what economists expect for home prices in 2023.

More housing coverage from Aarthi Swaminathan: ‘No housing market is immune to home-price declines’: Home values are already falling in these pandemic boomtowns.

Tips for maximizing financial aid for college

Getty Images/iStockphoto

When you fill out the Free Application for Federal Student Aid, or FAFSA, to help pay for your child’s college education, there may be a problem — old news. The form reflects your financial situation up to two years ago, and things may have worsened recently. Here’s how to make sure schools have the most recent information to help you get as much financial aid as possible.

This is why Florida’s insurance market is such a mess

Florida insurers are not only suffering from storm-damage payouts.

Joe Raedle/Getty Images

Hurricanes are nothing new to Floridians, but insurers in the state are losing money even though premiums have doubled over the past five years. Shahid S. Hamid, the director of the Laboratory for Insurance at Florida International University, explains why the Florida insurance market is so distorted.

Here’s a travel option you may never have heard of — home swapping

Villefranche-sur-mer on the French Riviera.

istock

Home swapping can give you an opportunity to live as a local in a faraway place while spending much less than you would as a tourist. Here’s how it works.

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October 14, 2022
Inflation expectations rise in October as consumer mood stays somber

The numbers: Consumer sentiment rose slightly to 59.8 in October even as Americans’ expectations for inflation worsened, according to a Friday survey.

The University of Michigan’s gauge of consumer attitudes added 1.2 index points from 58.6 in September.

Economists were expecting a reading of 59, according to a Wall Street Journal poll.

Consumer expectations for inflation over the next year rose to 5.1% from September’s one-year low of 4.7%, while expectations for inflation over the next 5 years ticked up to 2.9% from 2.7% last month.

Big picture: Americans are facing rising costs for key items like food and shelter as well as the impact of higher interest rates and the growing chance of a serious economic slowdown.

“Sentiment is now 9.8 points above the all-time low reached in June, but this improvement remains tentative, as the expectations index declined by 3% from last month,” wrote Joanne Hsu, director of the survey, on Friday. “Continued uncertainty over the future trajectory of prices, economies, and financial markets around the world indicate a bumpy road ahead for consumers.”

Key details: A gauge of consumer’s views of current conditions rose in October to 65.3 from 59.7 in September, while an indicator of expectations for the next six months fell to 56.2 from 58 last month.

Market reaction: U.S. stocks were trading mixed Friday morning, with the Dow Jones Industrial Average
DJIA,
-1.34%
posting gains and the S&P 500
SPX,
-2.37%
index showing slight losses.

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October 14, 2022
Some good news: One key driver of inflation is finally showing signs of easing

Rent growth is beginning to cool. But it’s descending from a heck of a peak.

Rental prices climbed 7.2% between September 2021 to September of this year, the largest annual increase since 1982, according to consumer price data released Thursday. Overall, shelter costs were also among the most significant drivers in rising consumer prices, along with the cost of food and medical care, the Labor Department said.

Still, it’s not all bad news for tenants. A new report from Realtor.com out Thursday found that nationwide, median rental prices in 50 large metros grew at their slowest annual pace in 16 months in September — at 7.8%. That marked the second consecutive month of single-digit year-over-year growth for 0-2 bedroom properties, and it meant that median asking rents fell by $12 in a month, Realtor.com said.

Housing inflation in the Consumer Price Index lags trends in the rental market, though, meaning the slowdown in rent growth might not register in the data for a while.

While median rental prices are still nearly 23% higher than they were two years ago, they’re no longer climbing at breakneck speeds with no end in sight. These days, economists say, that counts as a silver lining.

“After more than a year of double-digit yearly rent gains and nearly as many months of record-high rents, it’s especially important to see consistency before we confirm a major shift like the recent rental market cool-down,” Realtor.com Chief Economist Danielle Hale said in a statement. “But September data provides that evidence, as national rents continued to pull back from their latest all-time high registered just two months ago.”

“This return of more seasonal norms indicates that rental markets are charting a path back toward a more typical balance between supply and demand, compared to the previous year,” Hale added. “We expect rent growth to keep slowing in the months ahead, partly driven by the impact of inflation on renters’ budgets.”

Affordability, however, is worsening, Realtor.com said. Blame the fact that consumer prices are rising faster than wages.

(Realtor.com is operated by News Corp
NWSA,
+1.64%
subsidiary Move Inc., and MarketWatch is a unit of Dow Jones, which is also a subsidiary of News Corp.)

A Redfin
RDFN,
-3.55%
report out Thursday, meanwhile, said rents grew 9% year-over-year in September — the slowest pace since August 2021. Rents were still way up year-over-year in cities like Oklahoma City (24.1%), Pittsburgh (20%), and Indianapolis (17.9%.)

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October 13, 2022
Fed more worried about risks of ‘unacceptably high’ inflation than overdoing rate hikes, meeting minutes show

Calling inflation “unacceptably high,” Federal Reserve leaders saw their strategy of fighting price pressures aggressively as less risky to the economy than doing too little, minutes of the bank’s last meeting show.

The Fed approved another jumbo-size increase in U.S. interest rates at its Sept. 21-22 meeting. It also signaled plans for another pair of big increases before year-end in a surprise to Wall Street
DJIA,
-0.10%.

The minutes of the Fed’s meeting underscore that top officials were disappointed and worried about persistently high inflation.

“A sizable portion of the economic activity has yet to display much response,” the Fed minutes said. “Inflation had not yet responded appreciably to a policy tightening.”

While some senior Fed officials also worried the bank could go too far and damage the economy, the majority appeared to believe it was vital for the central bank to squelch inflation, even if that meant keeping rates high for a prolonged period.

“Many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action,” the minutes said.

The Fed predicts the economy will eventually slow as rates rise, but it noted the labor market remains extremely tight.

Fed officials also expressed concern that oil prices could rise again, supply chains would not heal as quickly as expected and that rising wages could exacerbate inflation.

“Inflation was declining more slowly than [Fed officials] had been anticipating,” the minutes said.

The internal Fed debate has also playing out publicly since the last meeting.

Some senior officials such as Atlanta Federal Reserve President Raphael Bostic hope the bank will make enough progress in its fight against inflation to “pause” rate hikes at the end of this year.

Fed critics contend the bank is going to go too far and could plunge the economy into a second recession in four years. A pause would allow the Fed to see how much its prior rate hikes have succeeded in lowering the rate of inflation, they say.

Others such as Minneapolis Fed chief Neel Kashkari and Cleveland Fed boss Loretta Mester say the Fed needs to take whatever steps necessary to quell inflation as soon as possible.

Failing to do so, they contend, would make it even harder to get prices back under control if Americans come to view high inflation as the norm. That would do even more damage to the economy in the long run.

Jennifer Lee, senior economist at BMO Capital Market, downplayed the debate and said the Fed in unified on its next few steps.

“The Federal Reserve is pretty much in sync and is not going to be easing anytime soon,” she said.

Since March the Fed has lifted a key short-term interest rate from near zero to an upper end of 3.25%. And the central bank has telegraphed plans to raise the so-called fed funds rate to as high as 4.75% by next year.

Rising U.S. interest rates has done little so far to douse inflation.

The rate of inflation, using the Fed’s preferred PCE price index, rose at a yearly rate of 6.2% as of August. That’s a long way off from the Fed’s forecast for inflation to fall to 2.8% in 2023 and 2.3% by 2024.

The higher cost of borrowing has only chilled a few parts of the economy, most notably housing.

The rate on a 30-year mortgage has surged above 7% to a 16-year high from less than 3% one year ago. The result has been a slowdown in home buying and construction and softer sales of home furnishings.

Most consumer and business loans are influenced by the fed funds rate.

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October 12, 2022
U.S. stocks edge up despite higher-than-expected inflation data
U.S. stock indexes edged higher on Wednesday, while hotter-than-expected producer price inflation data deepened concerns that the Federal Reserve may continue its aggressive interest rate hikes.

How are stock-index futures trading
- The Dow Jones Industrial Average
  DJIA,
  +0.50%
  was up 120 points, or 0.4% to around 29,355
- The S&P 500
  SPX,
  +0.35%
  gained 5.3 points, or 0.2% to about 3,594
- The Nasdaq Composite
  COMP,
  -6.31%
  traded 5.1 points, or 0.1% higher to 10,430
On Tuesday, the Dow Jones Industrial Average rose 36 points, or 0.12%, to 29239, the S&P 500 declined 24 points, or 0.65%, to 3589, and the Nasdaq Composite dropped 116 points, or 1.1%, to 10426. The S&P 500 closed down 1,177 points, or 24.7% for the year to date.
What’s driving markets

The 12-month rate of producer price inflation slowed to to 8.5% from 8.7% while the annual core rate, excluding food and energy, was unchanged at 5.6%, but the monthly rate rose 0.4% in September, above forecast, and the monthly core PPI was also up 0.4% in September.

Such data has worsened fears that to curb inflation, the Fed will continue its aggressive rate hikes, which may steer the U.S. economy into a recession.

“We believe the odds of a recession in 2023 are now better than 50%,” Greg Bassuk, chief executive at AXS Investments, wrote in a Wednesday note. “Last week’s market turbulence saw volatility at levels we have not seen since July, and we believe investors should brace for ongoing market volatility and uncertainty throughout Q4, in concert with another likely Fed interest rate hike to the tune of 0.75% in November,” according to Bassuk.

The 10-year Treasury yield BX:TMUBMUSD10Y, which started the year around 1.65% was trading at 3.931% on Wednesday, off 1.3 basis points, after the producer price inflation data.

Traders are also awaiting U.S. September consumer prices data on Thursday due at 8:30 am Eastern Time.

“Inflation has proven to be difficult to forecast and given the negative ‘shock’ from the August CPI, it would be difficult for any investor to have conviction going into this report,” according to Tom Lee, head of research at Fundstrat.

“For us, analyzing the month over month numbers is much more important than looking at the headline,” Zachary Hill, head of portfolio management at Horizon Investments, said in an interview.

“The way we’ve been thinking about it, the last three months annualized [inflation] gives you a kind of a decent idea of where the shorter term trends are around inflation,” Hill said. “We think that’s what the Fed is going to be looking at to see progress towards their 2% goal. And unfortunately, based on various measures, we’re nowhere near that today.”

Adding to the market anxiety, and keeping any Wednesday rally in check, is the continuing volatility in U.K. government bonds after the Bank of England reiterated it would stop supporting the market after Friday.

Investors have become increasingly concerned of late that severe stresses in the financial system may emerge as central banks switch from the era of zero or negative interest rates to sharply higher borrowing costs as they try to tackle inflation at multi-decade highs.

“[G]lobal financial conditions have tightened as central banks continue to raise interest rates. Our latest Global Financial Stability Report shows that financial stability risks have increased since our last report, with the balance of risks tilted to the downside,” said the International Monetary Fund in a report released on Tuesday.

“The mood of global investors was gloomy enough and hardly needed yesterday’s reminder from the IMF that the risks to financial stability have increased,” Ian Williams, strategist at Peel Hunt, noted. “Its report highlighted specifically (if obviously) the threats from persistent inflation, China’s slowdown and the war in Ukraine. The highlighted ‘disorderly repricing of risk’ is arguably already underway.”

The Fed may offer its view on the topic as a number of officials are due to give comments on Wednesday. Minneapolis Fed President Neel Kashkari said the Fed is “dead serious” about getting inflation down. Fed vice chair Michael Barr will speak at 1:45 p.m. The minutes of the Fed’s previous monetary policy setting meeting will be released at 2 p.m. ET and Fed governor Michelle Bowman will deliver comments at 6.30 pm.

Companies in focus

Shares of Philips
PHIA,
-12.27%

PHG,
-11.33%
plunged 12% after the Dutch tech company issued its second profit warning this year, forewarning that supply chain problems will impact sales and third-quarter profits.

Intel Corp.
INTC,
+1.50%
may fire thousands of workers by the end of the month, around the same time the chip manufacturer reports quarterly results amid a tough year for semiconductor makers, Bloomberg reported late Tuesday. The company’s shares rose 1% Wednesday.

Shares of PepsiCo Inc. climbed 4.6% Wednesday, after the beverage and snack giant reported third-quarter profit and revenue that rose above expectations and raised its full-year outlook, as higher prices helped offset some volume weakness.
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October 12, 2022
What stock-market investors will be watching in Thursday’s inflation report

Hotter-than-expected consumer-price index readings have triggered some of the stock market’s biggest one-day selloffs in 2022, serving to focus investor attention ahead of the latest measure of retail inflation on Thursday.

The September CPI reading from the Bureau of Labor Statistics, which tracks changes in the prices paid by consumers for goods and services, is expected to show an 8.1% rise from a year earlier, slowing from an 8.3% year-over-year rise seen in August, according to a survey of economists by Dow Jones.

The S&P 500
SPX,
+0.23%
is down 24.7% year to date through Tuesday, according to Dow Jones Market Data. Most of the single days that are responsible for the decline occurred on or around CPI reports or Fed-related events, said Nicholas Colas, co-founder of DataTrek Research, in a note on Monday. Two of the S&P 500’s nine largest down days this year have come on days when CPI data was released, he noted.

Without those nine down days, the S&P 500 would have been up 8.6% year-to-date through the end of last week, Colas wrote.

For example, the S&P 500 recorded its biggest daily percentage fall since June 2020 last month on CPI reporting day, when the large-cap index shed 177.7 points, or 4.3%. On June 13, the S&P slid 3.9% and ended in a bear market after the May inflation report came in hotter than expected, with CPI hitting a 40-year high. Three days later, the index dropped 3.3% following what was then the Federal Reserve’s largest rate hike since 1994.

“Every time we see large selloffs it means investor confidence has collided with macro uncertainty,” warned Colas. “History shows that valuations suffer when this happens repeatedly. As we see further equity market volatility, keep your expectations for valuations modest. They will bottom when macro news is greeted with a rally that sticks, not one that fades away a few days later.”

See: It’s time to pivot from the idea of a Federal Reserve rate-hike pivot, Goldman Sachs strategists say

Bloomberg reported that JPMorgan’s analysts led by Andrew Tyler expect the stock market to tumble by 5% on Thursday if the inflation gauge comes in above August’s 8.3%. If the result is in line with the consensus, the S&P 500 would fall about 2%. On the flip side, the team forecast any softening inflation below 7.9% will spark an equity rally where the index may jump at least 2%.

However, Aoifinn Devitt, chief investment officer at Moneta, said the market would take the top-line number and react to it.

“I would expect to see a similar reaction to what we saw from Friday’s jobs report, which was a positive number that translates into a negative stock-market reaction,” Devitt told MarketWatch via phone. “Stock prices have adjusted. Earnings have adjusted, so there’s already been this kind of managing of expectations (which) leads me to take up some of this and try to be on the upside for some of these stocks, just because so much of the bad news is already there.”

See: Stocks could fall ‘another easy 20%’ and next drop will be ‘much more painful than the first’, Jamie Dimon says

The September inflation report is expected to show the headline CPI continued moderating as gasoline and commodity prices fell to the February level. But future expectations may have changed after OPEC+ announced last week its decision to cut production by 2 million barrels a day, which may have “lagging effect (on inflation data)“, according to Devitt.

Meanwhile, shelter costs and medical care services, which have been at the core of inflationary pressures and are sticky, are expected to increase by 0.7% on a monthly basis. The core CPI is expected to be running at a year-over-year pace of 6.5%, up from 6.3% in August.

“The bulls are desperate for signs that inflation is set to roll back to the Fed’s target — they may be mistaken, and while headline inflation is expected to fall thanks to a decline in energy, the Fed’s focus has shifted towards core CPI,” said Chris Weston, head of research of Pepperstone, in a Tuesday note.

“This is why core CPI will unlikely roll over anytime soon and why the Fed has made it clear they will hike further and leave the fed fund rate in restrictive territory for an extended period,” he wrote.

U.S. stocks finished mostly lower on Tuesday with the Nasdaq Composite dropping 1.1%, while the S&P 500 shed 0.6% and the Dow Jones Industrial Average
DJIA,
+0.38%
edged up 0.1%. Stock-index futures pointed to a higher start Wednesday.

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October 12, 2022
The stock market is in trouble. That’s because the the bond market is ‘very close to a crash.’

Don’t assume the worst is over, says investor Larry McDonald.

There’s talk of a policy pivot by the Federal Reserve as interest rates rise quickly and stocks keep falling. Both may continue.

McDonald, founder of The Bear Traps Report and author of “A Colossal Failure of Common Sense,” which described the 2008 failure of Lehman Brothers, expects more turmoil in the bond market, in part, because “there is $50 trillion more in world debt today than there was in 2018.” And that will hurt equities.

The bond market dwarfs the stock market — both have fallen this year, although the rise in interest rates has been worse for bond investors because of the inverse relationship between rates (yields) and bond prices.

About 600 institutional investors from 23 countries participate in chats on the Bear Traps site. During an interview, McDonald said the consensus among these money managers is “things are breaking,” and that the Federal Reserve will have to make a policy change fairly soon.

Pointing to the bond-market turmoil in the U.K., McDonald said government bonds that mature in 2061 were trading at 97 cents to the dollar in December, 58 cents in August and as low as 24 cents over recent weeks.

When asked if institutional investors could simply hold on to those bonds to avoid booking losses, he said that because of margin calls on derivative contracts, some institutional investors were forced to sell and take massive losses.

Read: British bond market turmoil is sign of sickness growing in markets

And investors haven’t yet seen the financial statements reflecting those losses — they happened too recently. Write-downs of bond valuations and the booking of losses on some of those will hurt bottom-line results for banks and other institutional money managers.

Interest rates aren’t high, historically

Now, in case you think interest rates have already gone through the roof, check out this chart, showing yields for 10-year U.S. Treasury notes
TMUBMUSD10Y,
3.898%
over the past 30 years:

The yield on 10-year Treasury notes has risen considerably as the Federal Reserve has tightened during 2022, but it is at an average level if you look back 30 years.

FactSet

The 10-year yield is right in line with its 30-year average. Now look at the movement of forward price-to-earnings ratios for S&P 500
SPX,
-0.03%
since March 31, 2000, which is as far back as FactSet can go for this metric:

FactSet

The index’s weighted forward price-to-earnings (P/E) ratio of 15.4 is way down from its level two years ago. However, it is not very low when compared to the average of 16.3 since March 2000 or to the 2008 crisis-bottom valuation of 8.8.

Then again, rates don’t have to be high to hurt

McDonald said that interest rates didn’t need to get anywhere near as high as they were in 1994 or 1995 — as you can see in the first chart — to cause havoc, because “today there is a lot of low-coupon paper in the world.”

“So when yields go up, there is a lot more destruction” than in previous central-bank tightening cycles, he said.

It may seem the worst of the damage has been done, but bond yields can still move higher.

Heading into the next Consumer Price Index report on Oct. 13, strategists at Goldman Sachs warned clients not to expect a change in Federal Reserve policy, which has included three consecutive 0.75% increases in the federal funds rate to its current target range of 3.00% to 3.25%.

The Federal Open Market Committee has also been pushing long-term interest rates higher through reductions in its portfolio of U.S. Treasury securities. After reducing these holdings by $30 billion a month in June, July and August, the Federal Reserve began reducing them by $60 billion a month in September. And after reducing its holdings of federal agency debt and agency mortgage-backed securities at a pace of $17.5 billion a month for three months, the Fed began reducing these holdings by $35 billion a month in September.

Bond-market analysts at BCA Research led by Ryan Swift wrote in a client note on Oct. 11 that they continued to expect the Fed not to pause its tightening cycle until the first or second quarter of 2023. They also expect the default rate on high-yield (or junk) bonds to increase to 5% from the current rate of 1.5%. The next FOMC meeting will be held Nov. 1-2, with a policy announcement on Nov. 2.

McDonald said that if the Federal Reserve raises the federal funds rate by another 100 basis points and continues its balance-sheet reductions at current levels, “they will crash the market.”

A pivot may not prevent pain

McDonald expects the Federal Reserve to become concerned enough about the market’s reaction to its monetary tightening to “back away over the next three weeks,” announce a smaller federal funds rate increase of 0.50% in November “and then stop.”

He also said that there will be less pressure on the Fed following the U.S. midterm elections on Nov. 8.

Don’t miss: Dividend yields on preferred stocks have soared. This is how to pick the best ones for your portfolio.

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October 11, 2022
Dow books 630-point drop after strong jobs data rattles investors, but stocks cement weekly gains
U.S. stocks finished sharply lower Friday, but still booked their best weekly gains in a month, after September jobs data showed an unexpected fall in the unemployment rate that’s anticipated to reinforce the Federal Reserve’s resolve to keep tightening monetary policy.

Investors also weighed a profit warning at a leading microchip maker ahead of next week’s increase in quarterly earnings results.
What happened

The Dow Jones Industrial Average
DJIA,
-2.11%
fell 630.15 points, or 2.1%, ending at 29,296.79, but off the session low of 29,142.66.

The S&P 500
SPX,
-2.80%
dropped 104.86 points, or 2.8%, closing at 3,639.66.

The Nasdaq Composite
COMP,
-3.80%
shed 420.91 points, or 3.8%, to finish at 10,652.40.

Stocks posted back-to-back losses, trimming weekly gains, but recorded their best weekly gains since Sept. 9, according to Dow Jones Market Data.

Read: Will the stock market be open on Columbus Day?

What drove markets

Stocks recorded sharp losses Friday after the Labor Department said the U.S. economy added 263,000 jobs in September, while the unemployment rate declined to 3.5% from an August reading of 3.7%. Average hourly earnings rose 0.3%.

Still, a powerful rally earlier in the week boosted all three major stock indexes to weekly gains, a departure from three straight weekly losses, according to Dow Jones Market Data.

“It’s manic. We are all on edge,” said Kent Engelke, chief economic strategist at Capitol Securities Management, of the sharp market swings.

“Any piece of good news is a cause for an explosive rally,” Engelke said by phone. On the flip side, he pegged technology-based trading “in an illiquid and emotional market” as exacerbating Friday’s selloff.

“It’s a reflection that people have re-entered the mind-set that the Fed is going to be raising rates at a rapid clip, probably for longer than what they might have suspected at the start of the week,” said Robert Pavlik, a senior portfolio manager at Dakota Wealth Management, by phone.

Pavlik expects the Fed to keep tightening financial conditions to try to head off inflation. “But once we turn the corner, and the economy slows down, the Fed probably will be more aggressive in cutting rates on the way down.”

In addition, the Fed has been “draining liquidity from the system at a remarkable pace,” wrote Rick Rieder, BlackRock’s chief investment officer of global fixed income, in a Friday client note, while pointing to an astounding $1.3 trillion decline in the central bank’s balance sheet since the December 2021 peak.

Pavlik at Dakota Wealth said he anticipates the Fed will start slowing interest rate hikes by mid-next year, which likely means continued pressure for the stock market, particularly with a backdrop of big oil-price
CL00,
+5.37%
gains this week after global crude producers voted to cut monthly production and with the U.S. dollar’s
DXY,
+0.44%
surge this year against a basket of rival currencies.

U.S. crude oil prices climbed for a fifth day in a row on Friday to settle at $92.64 a barrel, while booking at 16.5% weekly gain.

New York Fed President John Williams said Friday that benchmark interest rates likely need to hit 4.5% over time. The Fed’s policy rate now sits in a 3%-3.25% range, up from a zero-0.25% range a year ago.

The benchmark 10-year Treasury rate
TMUBMUSD10Y,
3.889%
climbed to 3.883% Friday, as the key metric used to gauge the affordability of credit for businesses, household and the economy posted 10 straight weeks of gains, according to Dow Jones Market Data.

Read: Bond markets facing historic losses grow anxious of Fed that ‘isn’t blinking yet’

Investors continued to hope for relief on the inflation front and will be monitoring next week’s release of the September consumer-price index, as well as corporate earnings season as it picks up.

Companies in focus

Twitter Inc.
TWTR,
-0.43%
shares fell 0.4% Friday after a judge delayed a looming trial between the company and Elon Musk to allow the Tesla Inc.
TSLA,
-6.32%
CEO more time to close his $44 billion acquisition of the social media platform.

Besides the jobs report, investors weighed a profit warning from microchip maker Advanced Micro Devices Inc. AMD, which said the PC market weakened significantly during the quarter. AMD shares fell 13.9%, and rivals including Nvidia Corp. NVDA and Intel Corp. INTC also closed lower.

U.S. cannabis stocks were choppy Friday, with the AdvisorShares Pure US Cannabis ETF
MSOS,
-2.80%
ending lower, following steep gains earlier in the week after President Joe Biden said the U.S. would consider de-scheduling cannabis from its current position as a Schedule 1 narcotic under federal law.

—Steven Goldstein contributed reporting to this article
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October 7, 2022
Treasury yields climb as U.S. unemployment drops and wage growth remains strong
Treasury yields rose Friday after the U.S. September payrolls report showed a surprise decline in unemployment as well as strong growth in wages, making a pivot in Fed policy less likely.

What’s happening
- The yield on the 2-year Treasury
  TMUBMUSD02Y,
  4.307%
  rose 5 basis points to 4.31%
- The yield on the 10-year Treasury
  TMUBMUSD10Y,
  3.894%
  rose 5 basis points to 3.89%.
- The yield on the 30-year Treasury
  TMUBMUSD30Y,
  3.858%
  increased 3 basis points to 3.82%.
What’s driving markets

The U.S. created 263,000 nonfarm jobs in September — roughly in line with expectations — with the unemployment rate falling to 3.5% from 3.7%, while the year-over-year growth rate in hourly wages was 5%.

The unemployment decline was a surprise to economists who had anticipated a steady jobless picture.

Federal Reserve Gov. Christopher Waller late on Thursday said he didn’t expect the jobs report to change anyone’s thinking at the central bank. New York Fed President John Williams will have the opportunity to comment on the data when he speaks at 10 a.m. Eastern.

Ahead of the release, strategists at ING said the price action this week suggests the market has moved away from the early Fed policy pivot idea. “We may well have seen the structural top at 4% for the 10 year, or thereabouts, but we also feel we’re liable to see it at least one more time. There is a large fall in market rates to come, but we’re not at that point just yet,” they added.
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October 7, 2022
GDP set to turn positive again due to shrinking U.S. trade deficit and end ‘rule-of-thumb’ recession

The numbers: The U.S. international trade deficit fell in August to a 15-month low of $67.4 billion, paving the way for a resumption of growth in gross domestic product in the third quarter.

The deficit narrowed 4.3% from $70.5 billion in July, the government said Wednesday. It was the fifth decline in a row.

Economists polled by The Wall Street Journal had forecast a deficit of $67.7 billion.

GDP contracted in the first two quarters, meeting an old rule-of-thumb for when an economy is in recession.

The group of prominent economists that makes the official declaration, however, uses a broader definition that suggests the economy has avoided a recession.

Big picture: The U.S. trade deficit has tumbled since peaking at a record $106.9 billion in March. Exports have risen and imports have declined, particularly because of falling oil prices.

Lower trade deficits add to GDP, the official scorecard of the economy. The shrinking trade gap is set to add a whopping 3 points to third-quarter GDP, according to estimates from S&P Global Market Intelligence.

That’s the mirror opposite of what happened in the first quarter, when the record trade gap caused GDP to turn negative for the first time since early in the pandemic.

The result: GDP is set to rise for the first time in three quarters, ending at least for now any talk that the U.S. is already in recession.

Which way the trade deficit trends in the months ahead is less clear. A strong dollar is hurting U.S. exporters while a slowing economy could force Americans to reduce spending on imports even though they are cheaper to buy.

Ditto for the economy. While it’s still growing, the pace of expansion is expected to slow as the Federal Reserve jacks up interest rates to try to tame high inflation.

Key details: Exports slipped 0.3% in August to a $258.9 billion, but it’s still the second highest level on record.

Imports dropped 1.1% to $326.3 billion, marking the lowest level since early 2021.

Looking ahead: “The further sharp decline in the trade deficit… means that net exports provided a big boost to third-quarter GDP growth,” said senior U.S. economist Andrew Hunter at Capital Economics. “But the twin drags from the surging dollar and the deteriorating global economy suggest that strength will fade soon.”

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.27%
and S&P 500
SPX,
+0.20%
sank in Wednesday trades following a two-day rally.

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October 5, 2022
U.S. stocks finish choppy session with losses, snap 2-day winning streak as investors assess positive economic data
U.S. stock indexes ended modestly lower on Wednesday, despite briefly turning positive in the final hour of trading, while data showed steady growth in private-sector jobs and in the service sector, indicating more scope for the Federal Reserve to continue to raise interest rates.

How stocks traded?
- The Dow Jones Industrial Average
  DJIA,
  +0.03%
  lost 42.45 points, or 0.1%, to finish at 30,273.87
- The S&P 500
  SPX,
  +0.21%
  was off 7.65 points, or 0.2%, ending at 3,783.28
- The Nasdaq Composite
  COMP,
  +18.82%
  shed 27.77 points, or 0.2%, to end at 11,148.64
On Tuesday, the Dow jumped 825 points, or 2.8%, while the S&P 500 increased 3.1% and the Nasdaq Composite rallied 3.3%.
What drove markets?

Wall Street stocks finished in the red after three main indexes bounced back from earlier losses in the final hour of trade, following a strong September private employment report in the morning.

Data released Wednesday showed that private-sector payrolls rose by 208,000 in September, indicating steady growth and supporting the view that the Fed has enough scope to keep raising interest rates. Economists surveyed by The Wall Street Journal had expected a rise of 200,000.

The report came two days before the closely watched nonfarm payrolls data issued by the Bureau of Labor Statistics. Investors are eying on it for important guidance on the Fed’s policy stance in the November meeting.

Friday’s employment report is expected to show the economy added 275,000 jobs in September, compared with 315,000 new positions added in August, according to a survey polled by Dow Jones.

See: Hiring and job creation seen falling to a 1 1/2-year low in U.S. September jobs report

“That certainly could move the needle,” said Kristina Hooper, chief global market strategist at Invesco. “Again, it doesn’t mean that it actually is going to change the market, but it could be the catalyst for short term rally if we get a disappointing jobs report.”

“But keep in mind, that’s just the anticipation of a Fed pivot based on data. But that does not ensure a Fed pivot. And so it could be one of those short-term rallies like the one we saw earlier this week,” Hooper said.

In other data Wednesday, an ISM barometer of U.S. business conditions in the service sector dipped to 56.7% in September but still showed steady growth and rising employment in a sign the economy is still expanding.

The U.S. trade deficit in August fell to $67.4 billion, the lowest level since mid 2021, paving the way for a resumption of growth in gross domestic product in the third quarter.

See: Why investors shouldn’t expect a break from the stock-market whiplash, says this strategist

The S&P 500 had just enjoyed its largest two day percentage gain since April 2020 on Monday and Tuesday, and the best start to a quarter since 1938, according to Dow Jones Market data.

The bounce followed three quarters of declines, the worst such run since 2008, during which time the S&P 500 fell 24.8% to a near two-year trough as investors worried that the Federal Reserve’s interest rate hikes to crush inflation would harm the economy.

Brian Mulberry, client portfolio manager at Zacks Investment Management, believes the volatility in the stocks will continue because markets are getting a very “consistent message” from the Fed.

“Given what has happened over the last five trading sessions alone, we would be basically telling our clients to tighten your seatbelt a little bit because it’s definitely going to continue to be a bumpy ride,” Mulberry told MarketWatch in a phone interview on Wednesday. “If we get a ‘Goldilocks’ (jobs) report, that would mean decent economic activity is going on. That’s good for earnings overall in the market, but it’s not growing to a point where interest rates would have to be ratcheted up another 125 basis points by the end of the year.”

See: The stock market is surging as the U.S. dollar retreats. It’s all about bonds.

One major reason behind the rise early this week was the view that the Fed would pivot away from its aggressive monetary tightening.

Johanna Chua, chief Asia economist at Citi, said that though U.S economic growth remained in better shape than other countries and Fed officials continued to sound hawkish, the market risked being wrongfooted by any signs that interest rates could soon peak.

“Even as the overall fundamental setup has not changed… trimming of bearish risk/bearish rates/bullish USD positions has driven a sharp reversal,” Chua said.

Mary Daly, president of the Federal Reserve Bank of San Francisco said Wednesday that the Federal Reserve needs to keep raising its benchmark interest rate in order to cool inflation that hit a 40-year high earlier this year and has shown little signs of cooling. Atlanta Fed President Raphael Bostic will speak at 4 p.m. Eastern.

Meanwhile, the OPEC+ group said Wednesday that it will reduce its collective crude production levels by 2 million barrels a day starting next month, the biggest cut since the start of the pandemic. Oil futures headed higher with West Texas Intermediate crude for November delivery
CL00,

CLX22,

rose $1.24, or 1.4%, to settle at $87.76 a barrel on the New York Mercantile Exchange.

The S&P 500’s energy sector
SP500.10,
-0.07%
rose 2.1% following the news, up 12.6% over the last three trading days. According to Dow Jones Market Data, it was the best three-day percentage gain since November 2020 when it gained 16.1%. Shares of Schlumberger
SLB,
+0.77%
gained 6.3% at the close, while Exxon Mobil
XOM,
+1.32%
shares advanced 4%.

Companies in focus

Shares of Helen of Troy Ltd.
HELE,
-2.75%
finished 3.4% higher Wednesday, after the consumer products company, with brands including OXO, Hydro Flask and Braun, reported fiscal second-quarter earnings that beat expectations but cut its full-year outlook, as rising inflation has prompted consumers to change their spending patterns.

Shares of Monopar Therapeutics Inc.
MNPR,
+6.36%
gained 1.8% after the company said it completed enrollment in a Phase 2b clinical trial evaluating its experimental therapy aimed at preventing severe oral mucositis in patients undergoing chemoradiotherapy for oropharyngeal cancer.

Shares of Eiger BioPharmaceuticals Inc.
EIGR,
+0.85%
tumbled 5% after the company said it will not pursue emergency authorization of its experimental treatment for mild and moderate COVID-19 infections.

Shares of Lamb Weston Holdings Inc.
LW,
+2.45%
ended 4.2% higher Wednesday, after the potato supplier reported fiscal first-quarter profit that beat expectations, higher prices helped offset a volume decline.

—Jamie Chisholm contributed reporting
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October 5, 2022
1 in 5 of Americans don’t know about new omicron-targeting COVID boosters, survey finds

About half of the American public has heard little or nothing about the new COVID-19 bivalent booster, a new survey by the Kaiser Family Foundation has found. The new booster targets the omicron variants that have become dominant around the world.

One in five of those surveyed said they had heard “nothing at all” about the new boosters. Some 17% said they had heard “a lot” about the boosters, while 33% said they had heard “some” about the new shots. About a third said they’d already gotten the new booster or intended to do so as soon as possible.

“Intention is somewhat higher among older adults, one of the groups most at risk for serious complications of a coronavirus infection,” the authors wrote. “Almost half (45%) of adults ages 65 and older say they have gotten the bivalent booster or intend to get it ‘as soon as possible.’”

Source: Kaiser Family Foundation

The news will likely disappoint health experts who cheered the regulatory authorization of the new boosters in August. The U.S. Food and Drug Administration granted emergency-use authorization to boosters developed by Moderna
MRNA,
+1.36%
and by Pfizer
PFE,
-0.07%
and German partner BioNTech
BNTX,
+1.53%
for use in people aged 12 and older who have had an initial series of a COVID vaccine, including those who have already had one or more booster doses.

The Centers for Disease Control and Prevention is recommending that all adults get one of the bivalent boosters at least two months after completing a primary series of shots. So far, some 7.6 million people in the U.S. have received it, according to the CDC.

From the CDC: Stay Up to Date with COVID-19 Vaccines Including Boosters

Once again, the country’s partisan divide is evident, with 6 in 10 Democrats saying they’ve already had the shot or will get it soon, compared with 1 in 8 Republicans.

“Notably, 20% of Republicans say they will ‘definitely not’ get the new COVID-19 booster dose, while a further 38% of Republicans are unvaccinated or only partially vaccinated and therefore not eligible for the new updated COVID-19 booster dose,” the survey authors said.

Also read: A common virus is putting more children in the hospital than in recent years

In the U.S., known cases of COVID are continuing to ease and now stand at their lowest level since late April, although the true tally is likely higher given how many people are testing at home, where data are not being collected.

The daily average for new cases stood at 47,569 on Thursday, according to a New York Times tracker, down 26% from two weeks ago and now at the lowest level since late April. Cases are rising in 14 states and are sharply higher in several. Montana leads the count with a 75% rise in the last two weeks, followed by Washington with a 48% rise. Cases are up by double digits in Rhode Island, New York, Massachusetts, New Hampshire, Vermont and New Jersey.

The daily average for hospitalizations was down 13% to 28,639, while the daily average for deaths was down 11% to 407.

The new bivalent vaccine might be the first step in developing annual COVID shots, which could follow a similar process to the one used to update flu vaccines every year. Here’s what that process looks like, and why applying it to COVID could be challenging. Illustration: Ryan Trefes

Coronavirus Update: MarketWatch’s daily roundup has been curating and reporting all the latest developments every weekday since the coronavirus pandemic began

Other COVID-19 news you should know about:

• The U.K. is the only G-7 country whose economy is smaller now than before the pandemic, the Guardian reported, citing data released Friday by the Office for National Statistics. The ONS released figures showing that rather than the economy being 0.6% larger than it was in February 2020, a combination of a deeper recession during the pandemic and a weak recovery had left it 0.2% smaller. All the other major economies in the G-7, including France and Italy, recovered strongly enough to be larger than they were in February 2020.

• Taiwan is the latest country to end mandatory COVID quarantines for people arriving from overseas, the Associated Press reported. Officials said that beginning Oct. 13, the previous weeklong quarantine requirement would be replaced with a seven-day self-monitoring period. A rapid antigen test will still be required upon arrival, but people showing no symptoms will be allowed to take public transportation.

• Germany’s health ministry is warning of a rise of COVID cases heading into the fall and is urging older people in particular to get a second booster shot, the AP reported separately. Other European countries such as France, Denmark and the Netherlands are also recording an increase in cases, German Health Minister Karl Lauterbach told reporters in Berlin. “We are clearly at the start of a winter wave,” he said.

COVID-19 lockdowns, corruption crackdowns and more have put China’s economy on a potential crash course with the U.S. and the rest of the world, the Wall Street Journal’s Dion Rabouin explains. Illustration: David Fang

• The first Chinese mRNA-based COVID vaccine has received government approval — in Indonesia, the New York Times reported. The shot, developed by Walvax Biotechnology
300142,
+0.49%,
Suzhou Abogen Biosciences and the Chinese military, was cleared this week by Indonesia for emergency use. Countries all over the world, including Indonesia, have embraced mRNA vaccines, and they are considered among the most effective vaccines that the world has to offer. But more than two years into the pandemic, they are not yet available in China, which has relied on an increasingly draconian “zero-COVID” approach to keep cases and deaths from the virus low.

• Patriarch Kirill of Moscow, the head of the Russian Orthodox Church and a supporter of Russia’s war on Ukraine, has tested positive for COVID-19, the church’s press service said on Friday, Reuters reported. The church said Kirill, 75, a close ally of Russian President Vladimir Putin, had canceled all his planned trips and events and had “severe symptoms” requiring bed rest and isolation. It said his condition was “satisfactory.”

Here’s what the numbers say:

The global tally of confirmed cases of COVID-19 topped 617.3 million on Friday, while the death toll rose above 6.54 million, according to data aggregated by Johns Hopkins University.

The U.S. leads the world with 96.3 million cases and 1,059,291 fatalities.

The Centers for Disease Control and Prevention’s tracker shows that 225.3 million people living in the U.S., equal to 67.9% of the total population, are fully vaccinated, meaning they have had their primary shots. Just 109.9 million have had a booster, equal to 48.8% of the vaccinated population, and 23.9 million of those who are eligible for a second booster have had one, equal to 36.6% of those who received a first booster.

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September 30, 2022
Weekend reads: What to expect now for home prices, stocks and bonds

This week Freddie Mac said the average interest rate on a 30-year mortgage loan in the U.S. had climbed to 6.70% from 6.29% the week before and 6.02% two weeks ago. The average rate a year ago was 3.01%.

Would-be sellers who have low-rate mortgage loans are reluctant if it means they need to take out a new loan to fund their next home. Would-be buyers are forced out of the market, as the monthly principal and interest payment for a new 30-year loan, based on Freddie Mac’s figures, has increased 53% from a year ago.

Home-sale contracts are being canceled at a record pace in some areas.

But these factors could lead to a buyer’s market in 2023 if prices plunge. Here are the areas economists expect to see the largest home price declines.

The strong dollar and the stock market

Khaled Desouki/Agence France-Presse/Getty Images

The dollar has strengthened as the Federal Reserve has taken the lead among central banks in raising interest rates. This is reverberating across the world, making it more costly for countries to make interest payments on dollar-denominated debt and increasing the cost of any commodity traded in dollars.

The rising dollar lowers prices on imported goods for Americans and can also lower their international travel costs. But Michael Wilson, Morgan Stanley’s chief equity strategist, warns that earnings for the S&P 500
SPX,
-1.51%
would decline as a direct result of the strong dollar and called the current foreign-exchange backdrop an “untenable situation” for the stock market.

On the other hand: Companies are trying to blame weak earnings on the strong U.S. dollar, but that’s a lame excuse

This is what happens when bearish sentiment runs high

Michael Brush interviews David Baron, co-manager of the Baron Focused Growth Fund
BFGFX,
-0.76%,
who describes opportunities cropping up as institutional investors dump stocks. He also explains his winning long-term strategy, which has included a very long-term investment in Tesla Inc.
TSLA,
-1.10%.

A a positive sign for the stock market: These 12 stocks have seen strong insider buying

Time to buy bonds?

When interest rates rise, bond prices fall. But it also means that if you have money to put to work, bond yields have become much more attractive.

Khuram Chaudhry, a European equity quantitative strategist at JPMorgan in London, makes the case for buying bonds now.

What about preferred stocks?

Getty Images/iStockphoto

Preferred stocks feature stated dividend yields and prices that move the same way bond prices do. That means prices for many issues are now heavily discounted to face value and that current yields are much higher than they were at the end of 2021. Here’s an in-depth guide on how to research preferred stocks and make your own selections.

Related: 22 dividend stocks screened for quality and safety

The problem with macro market projections

Stanley Druckenmiller predicted a “hard landing” in 2023 for the U.S. economy while speaking at CNBC’s Delivering Alpha Investor Summit on Sept. 28.

Bloomberg

Stanley Druckenmiller predicted a U.S. recession in 2023 as a result of monetary policy tightening by the Federal Reserve. That may not be much of a stretch, considering that the U.S. economy contracted during the first half of 2022, according to revised GDP figures from the Bureau of Economic Analysis.

But investors should be careful — macro forecasts often turn out to be incorrect, Mark Hulbert warns.

More on stocks: It’s the worst September for stocks since 2008. What that means for October.

Recessions and your retirement plans

Getty Images

Alessandra Malito has advice on how retirees and people planning for retirement can prepare for tough economic times.

Also: Reset your retirement calculator now for today’s bleaker stock markets and make sure you’re still on track

Investors tremble and a central bank scrambles

The Bank of England’s headquarters.

Agence France-Presse/Getty Images

After the new U.K. government of Prime Minister Liz Truss announced a massive tax cut along with a new spending program to help counter rising fuel costs and new borrowing, the pound hit a new low against the dollar on Sept. 26 as investors and money managers panicked and sold-off U.K. government bonds. Steve Goldstein explains how and why the Bank of England came tot the rescue.

A closer look at reverse mortgages

Getty Images/iStockphoto

Beth Pinsker digs deeply to explain how to use a reverse mortgage as a financial planning tool.

Poking a little fun at Elon Musk

Getty Images

After Tesla CEO Elon Musk said the upcoming Cybertruck would be sufficiently waterproof to “serve briefly as a boat,” the San Francisco Bay Ferry offered this advice to patrons.

Want more from MarketWatch? Sign up for this and other newsletters, and get the latest news, personal finance and investing advice.

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September 30, 2022
Eurozone Inflation posts new record high of 10.0% in September

Eurozone inflation hit a new record in September and is expected to rise further in the coming months amid higher energy prices, increasing the likelihood of a lengthier and deeper economic contraction at year-end.

The consumer price index–a measure of what consumers pay for goods and services–increased 10.0% in September compared with the same month a year earlier after climbing 9.1% in August, according to preliminary data from Eurostat, the European Union’s statistics agency.

The reading beats the 9.7% consensus forecast from economists polled by The Wall Street Journal.

September’s rise in the inflation rate was driven by energy prices, with prices up 40.8% year-on-year in September after a 38.6% increase in August.

There was also an acceleration of food, alcohol and tobacco prices, which rose 11.8% on year compared with a 10.6% rise in August, data from Eurostat showed.

The core consumer price index–which excludes the more volatile categories of food and energy–rose 4.8% on year in September, up from 4.3% in August.

Economists expect eurozone inflation to increase further in the coming months, remaining above double digits. Elevated inflation adds pressure on the European Central Bank, which raised key interest rates by 75 basis points in September and is expected to increase rates again by 75 basis points at its next meeting in October.

Write to Maria Martinez at maria.martinez@wsj.com

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September 30, 2022
Dow falls 500 points Friday as stocks book third straight quarterly loss, set new 2022 lows
U.S. stocks dropped sharply Friday, with major indexes posting their lowest finishes since 2020 and logging a third straight quarterly decline as investors grew more fearful that aggressive interest rate hikes by the Federal Reserve will drive the economy into a downturn in an attempt to quell inflation.

What’s happening
- The Dow Jones Industrial Average
  DJIA,
  -1.71%
  dropped 500.10 points, or 1.7%, to close at 28,725.51.
- The S&P 500
  SPX,
  -1.51%
  dropped 54.85 points, or 1.5%, to end at 3,585.61.
- The Nasdaq Composite
  COMP,
  -0.43%
  shed 161.88 points, of 1.5%, finishing at 10,575.61.
The drop left the Dow and S&P 500 at their lowest since November 2020, while the Nasdaq posted its lowest close since July 29, 2020. The Dow dropped 8.8% in September, while the S&P 500 tumbled 9.3% and the Nasdaq lost 10.5%.
For the quarter, the Dow dropped 6.7%, the S&P 500 declined 5.3% and the Nasdaq gave up 4.1%.

What’s driving the market

In keeping with the historical pattern, U.S. stocks suffered during the month of September as an assertive Federal Reserve helped push Treasury yields and the dollar higher, which in turn undermined equity valuations.

See: It’s the worst September for stocks since 2008. What that means for October.

Investors on Friday digested a reading from the personal consumption expenditure inflation index for August, which showed that core consumer prices climbed by 0.6% last month, more than Wall Street’s forecast of 0.5%. The core inflation measure excludes volatile food and energy prices.

See: Cheaper gas holds down inflation, PCE shows, but the cost of everything else is still going up fast

“That means the Fed will remain hell-bent on killing inflation. And the best way to do that is to increase rates, kill the housing market, and get rental costs down. The PCE doesn’t have housing and rents as a big component as the CPI does, so the fact that it is rising is a warning sign,” said Louis Navellier, founder of Navellier & Associates, in emailed comments.

Read: Will October be another stock-market ‘bear killer’? Why investors need to tread carefully around seasonal trends.

The reading largely confirmed similar data from the consumer-price index, another closely watched inflation barometer, which sent stocks lower earlier this month. Since that report was released just over two weeks ago, the S&P 500 has fallen more than 10%.

Helping to underscore this point, data out of the eurozone showed inflation accelerated at a record pace last month.

See: Eurozone Inflation posts new record high of 10% in September

In other news, investors also heard from Fed Vice Chair Lael Brainard, who reiterated that the central bank would keep interest rates elevated to combat inflation, even if it harms the economy.

See: Fed won’t pull back from rate hikes prematurely, Brainard says

Since it will take time for high interest rates to bring inflation down, Brainard said the Fed is “committed to avoiding pulling back prematurely.”

Investors were also keeping an eye on megacap tech stocks. Apple Inc. AAPL fell 3% on Friday after leading markets lower a day earlier following a downgrade by Bank of America.

Need to know: Here’s why investors should start betting on Apple and the stock market now

A final reading on the University of Michigan consumer-sentiment index for September showed consumers’ view of the economy improved somewhat during the month due to falling gas prices, even as their outlook remained broadly pessimistic.

Investors are now facing “what may be one of the most important earning seasons in a very long time, with a major rally in the cards if earnings don’t disappoint, and if the bears are right, lead to a further leg down if earnings disappoint and 4th quarter estimates are cut,” Navellier said.

See: U.S. consumers remain pessimistic about economy even as inflation fears wane

Stocks in focus

Shares of Nike Inc.
NKE,
-12.81%
tumbled 12.8% after executives at the sportswear maker said price cuts to clear stockpiles from warehouses in North America would dent gross margins for the rest of the fiscal year. Analysts were raising red flags and cutting prices targets on the stock.

Micron Technology
MU,
+0.18%
stock rose 0.2% after a report that Japan will grant it a $320 million subsidy to make advanced memory chips at its Hiroshima plant. That came a day after Micron posted quarterly earnings that included a forecast for a loss in the coming quarter and plans to scale back a build out of capacity.

— Steve Goldstein and Barbara Kollmeyer contributed to this article
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September 30, 2022