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Tag: Equity Markets

  • Wall Street’s ‘fear gauge’ is flashing a warning that stocks could be about to fall off a cliff

    Wall Street’s ‘fear gauge’ is flashing a warning that stocks could be about to fall off a cliff

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    The CBOE Volatility Index has captured the attention of market analysts this year as a key relationship between Wall Street’s “fear gauge” and the S&P 500 index appears to have broken down.

    Typically, the VIX
    VIX,
    -0.27%    ,
    a popular measure of the stock market’s expectation of volatility based on S&P 500 index options, and S&P 500 index itself
    SPX,
    -0.01%
    share an inverse correlation. When the S&P 500 falls to new multiyear lows, like it did early this week, the VIX climbs to new highs. However, this relationship has broken down this year. Most recently, the VIX failed to take out its highs from June as the S&P 500 logged its lowest closing low since September 2020 this week.

    A similar pattern emerged as stocks fell to what were then their lowest levels of the year in June.

    The dynamic can be seen in a chart produced by Katie Stockton, a market strategist at Fairlead Strategies, which can be found below.


    FAIRLEAD STRATEGIES

    But this trend of lower highs for the VIX isn’t the only technical indicator that has caught market strategists’ attention.

    The VIX is on the cusp of achieving a “golden cross” — a term used by market technicians to denote when the 50-day moving average of a given asset, exchange rate or index climbs above the 200-day moving average.

    In the past, these “golden crosses” have preceded sharp downturns in stocks. One occurred in September 2008, just before stock-market volatility exploded in response to Lehman Brothers’ bankruptcy, according to Tyler Richey, co-editor of the Sevens Report and a stock-market strategist who closely follows the Vix.

    “Using history as a guide, this is the kind of tipping point where things could get ugly,” Richey said.

    The previous VIX “golden cross” occurred nearly one year ago in December 2021. The S&P 500, Dow Jones Industrial Average
    DJIA,
    +0.19%
    and Nasdaq Composite
    COMP,
    -0.08%
    reached their cycle peaks little more than one month later.

    As of the close of trading on Tuesday, the 50-day moving average for the VIX stood at 25.76, while the 200-day moving average stood at 25.86.

    While they’re not as closely followed as the VIX, the CBOE Nasdaq Volatility Index and the CBOE Dow Jones Industrial Average Volatility Index are also on the cusp of reaching the “golden cross” milestone.

    Stockton said investors “shouldn’t find any solace” in the latest technical signals emanating from the VIX. However, she told MarketWatch that she doesn’t typically follow the golden cross indicator since the VIX is an “oscillating” gauge not a “trending” one.

    As for what might be driving the pattern of lower highs in the VIX, Richey said it could be a result of “real money” investors like mutual funds and pension funds liquidating their holdings, instead of using options-based hedging strategies to protect their downside risk.

    As of Wednesday morning, the Vix and other stock-market volatility gauges were mixed as the S&P 500 and the Dow
    DJIA,
    +0.19%
    shook off early losses, while the Nasdaq
    COMP,
    -0.08%
    remained mired in the red.

    Looking ahead, Stockton said she believes 35 is the next key “resistance” level for the VIX, which is just below the index’s highs from June.

    Should the volatility gauge surmount that level, Stockton said she wouldn’t expect the selling in stocks to stop until the VIX hits 50.

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  • What stock-market investors will be watching in Thursday’s inflation report

    What stock-market investors will be watching in Thursday’s inflation report

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    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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  • Asian stocks moving lower in wake of latest volatile session on Wall Street

    Asian stocks moving lower in wake of latest volatile session on Wall Street

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    TOKYO (AP) — Asian shares were mostly lower on Wednesday following another volatile day on Wall Street, as traders braced for updates on inflation and corporate earnings.

    Benchmarks fell in Tokyo
    NIY00,
    +0.09%    ,
    Shanghai
    SHCOMP,
    -1.12%
    and Hong Kong
    HSI00,
    -2.90%
    but rose in Sydney.

    South Korea’s Kospi
    180721,
    +0.34%
    lost 0.1% to 2,189.86 after the Bank of Korea raised its key rate by 0.5 percentage point, amid the backdrop of Fed rate hikes in the U.S. and growing inflation risks from the weak won and rebounding global oil prices.

    In currency trading the Japanese yen declined to a 24-year low against the U.S. dollar
    JPYUSD,
    -0.24
    at 146 yen-levels, raising expectations of another intervention by Tokyo to prop up the yen. By midday the dollar
    USDJPY,
    +0.24%
    was at 146.17 yen, up from 145.80 late Tuesday. The euro
    EURUSD,
    +0.12%
    cost 96.96 cents, inching down from 97.07 yen.

    The weaker yen raises costs for both consumers and businesses who rely on imports of food, fuel and other needs, but the bigger purchasing power for foreign currencies is expected to boost tourism. Japan reopened fully to individual tourist travel this week after being closed for more than two years because of the pandemic.

    Japan’s benchmark Nikkei 225 lost 0.2% to 26,348.73 in morning trading. Australia’s S&P/ASX 200
    ASX10000,
    -1.54%
    gained nearly 0.2% to 6,656.00. Hong Kong’s Hang Seng slipped 2% to 16,491.39, while the Shanghai Composite shed 1.2% to 2,943.24.

    On Tuesday, the S&P 500
    SPX,
    -0.65%
    fell 0.7%, marking its fifth straight loss, closing at 3,588.84. The Nasdaq
    COMP,
    -1.10%
    dropped 1.1% to 10,426.19. The Dow Jones Industrial Average
    DJIA,
    +0.12%
    added 0.1% to 29,239.19, while the Russell 2000 index
    RUT,
    +0.06%
    rose 1 point, or about 0.1%, to 1,692.92.

    Recession fears have been weighing heavily on markets as stubbornly hot inflation burns businesses and consumers. Economic growth has been slowing as consumers temper spending and the Federal Reserve and other central banks raise interest rates.

    The International Monetary Fund on Tuesday cut its forecast for global economic growth in 2023 to 2.7%, down from the 2.9% it had estimated in July. The cut comes as Europe faces a particularly high risk of a recession with energy costs soaring amid Russia’s invasion of Ukraine.

    See: Global economy most vulnerable since COVID crisis, with housing market at potential ‘tipping point,’ IMF warns

    Wall Street is closely watching the Federal Reserve as it continues to aggressively raise its benchmark interest rate to make borrowing more expensive and slow economic growth. The goal is to cool inflation, but the strategy carries the risk of slowing the economy too much and pushing it into a recession.

    “The market desperately wants a reason for the Fed to be able to stop tightening and the data recently hasn’t given them that opening with respect to inflation,” said Willie Delwiche, investment strategist at All Star Charts.

    Computer-chip manufacturers continued slipping in the wake of the U.S. government’s decision to tighten export controls on semiconductors and chip manufacturing equipment to China. Qualcomm
    QCOM,
    -3.99%
    fell 4%.

    See: Intel reportedly plans to lay off thousands of workers, with details potentially emerging alongside quarterly earnings

    Uber
    UBER,
    -10.42%
    fell 10.4% and Lyft
    LYFT,
    -12.02%
    slumped 12% following a proposal by the U.S. government that could give contract workers at ride-hailing and other gig economy companies full status as employees.

    The Fed will release minutes from its last meeting on Wednesday, possibly giving Wall Street more insight into its views on inflation and next steps.

    Investors still expect the Fed to raise its overnight rate by three-quarters of a percentage point next month, the fourth such increase. That’s triple the usual amount, and would bring the rate up to a range of 3.75% to 4%. It started the year at virtually zero.

    Rex Nutting: Leading indicators show inflation is slowing, but Fed policy makers are too busy looking in rearview mirror to notice

    The government will also release its report on wholesale prices Wednesday, providing an update on how inflation is hitting businesses. The closely watched report on consumer prices will be released on Thursday, and a report on retail sales is due Friday.

    “Everyone is still hoping that every inflation report will be the one that shows that pressure is alleviating,” Delwiche said.

    Wall Street is also gearing up for the start of the latest corporate earnings reporting season, which could provide a clearer picture of inflation’s impact.

    Among the companies reporting quarterly results this week: PepsiCo
    PEP,
    +0.48%    ,
    Delta Air Lines
    DAL,
    -1.97%
    and Domino’s Pizza
    DPZ,
    -1.99%    .
    Banks including Citigroup
    C,
    -2.76%
    and JPMorgan Chase
    JPM,
    -2.89%
    will also report results.

    In energy trading, benchmark U.S. crude
    CL00,
    -0.75%
    lost 82 cents to $88.53 a barrel in electronic trading on the New York Mercantile Exchange. U.S. crude-oil prices fell 2% Tuesday. Brent crude
    BRN00,
    -0.56%    ,
    the international pricing standard, fell 62 cents to $93.67 a barrel.

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  • S&P 500, Nasdaq log lowest close in more than 2 years as stocks fall for 5th day

    S&P 500, Nasdaq log lowest close in more than 2 years as stocks fall for 5th day

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    U.S. stocks finished mostly lower on Wednesday with the S&P 500 logging its lowest end-of-date level since September, while the Nasdaq Composite logged its lowest such level since July. Only the Dow Jones Industrial Average managed to evade a loss for the day; the other two indexes recorded their fifth straight session in the red. The S&P 500
    SPX,
    -0.65%
    finished down 23.55 points, or 0.7%, to 3,588.84. The Nasdaq
    COMP,
    -1.10%
    fell 115.91 points, or 1.1%, to close at 10,426.19. The Dow
    DJIA,
    +0.12%
    advanced 36.31 points, or 0.1%, to finish at 29,239.19

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  • The stock market is in trouble. That’s because the the bond market is ‘very close to a crash.’

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

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    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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  • This industry could be worth $180 billion by 2040. Citigroup offers four stock names to play it, and a few more to think about.

    This industry could be worth $180 billion by 2040. Citigroup offers four stock names to play it, and a few more to think about.

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    Investors are bracing for some choppiness on Wall Street, with oil prices falling as growth worries rattle around the globe. That’s as the clock ticks down to CPI and the start of a earnings season later this week, and in the backdrop a war is intensifying in Europe.

    Tough times don’t last, but tough investors do right? Maybe, hopefully. In any case, focusing on the distant future might offer some comfort right now.

    And that’s where we’re headed with our call of the day from Citigroup, whose strategists have stock ideas to play what they expect will be one of the ten fastest-growing markets through 2040.

    They are talking about the global fuel cell industry, a direct play on the green energy debate, and “reaching the part that batteries cannot.”

    “Fuel cells enable both de-carbonization and energy resilience, and we see them as crucial in harder-to-abate sectors like commercial vehicles and marine,” a Citi team led by research analyst Martin Wilkie told clients in a note on Tuesday.

    Their base case sees this market reaching 50 gigawatts (GW) and $40 billion by 2030, offering a compound average growth rate of more than 35% in dollar terms, with further acceleration to 500GW/$180 billion by 2040.

    They admit they’re on the bullish side with these projections, and note fuel cell stocks are on average down around 70% since their January 2021 peaks . 

    “The fuel cell equity story has had false starts before, but we see the impetus from emissions policy as well as announced hydrogen plans as creating attractive opportunities,” said the Citi analysts, highlighting policies such as the U.S. Inflation Reduction Act, which aims at beefing up renewable energy and a recent EU move to offer more green-energy research and development subsidies.

    While passenger cars were a big source of demand for the growing fuel cell market in 2021, they don’t think it can be a big competitor to battery electric. However, stationary power, such as distributed and backup power generation and heavy-duty transport, think commercial vehicles, off-road and later marine are set to become key fuel-cell markets.

    U.K.-based Ceres Power
    CWR,
    -1.69%    ,
    Plug Power
    PLUG,
    -0.25%    ,
    Belgium’s Umicore
    UMI,
    -1.69%    ,
    and Japan’s Toyota
    7203,
    -0.96%

    TM,
    -0.73%
    are Citi’s buy-rated stocks with high exposure to the fuel-cell theme.

    Other names they mention, include Daimler Truck
    DTG,
    +1.32%
    and Volvo
    VOLV.B,
    +0.21%

    VOLV.A,
    +0.12%    ,
    which are working with Germany’s Traton
    8TRA,
    -2.09%
    on a joint venture called Cellcentric that aims to develop that technology for trucks, with a production goal of 2025. Others are outsourcing fuel-cell tech, such as Italy’s Iveco Group
    IVG,
    +0.10%    ,
    which has teamed up with South Korea’s Hyundai
    005380,
    -4.27%    ,
    and U.S.-based Paccar
    PCAR,
    +0.23%
    with Toyota
    TM,
    -0.73%    .

    The markets

    Stock futures
    ES00,
    -0.38%

    YM00,
    -0.22%

    NQ00,
    -0.46%
    have pared some losses, while bond yields
    TMUBMUSD10Y,
    3.927%

    TMUBMUSD02Y,
    4.307%
    are mixed, and the dollar
    DXY,
    -0.14%
    has turned lower. Oil prices
    CL.1,
    -1.42%
    are also pressure.

    The buzz

    Shares of the world’s biggest chip maker, TSMC
    2330,
    -8.33%    ,
    fell 8% in Taiwan
    Y9999,
    -4.35%    ,
    where stocks dropped more than 4% following new limits by the U.S. imposed on exports of semiconductors and chip-making equipment to China.

    The Bank of England made the second move this week to calm jittery markets, saying Tuesday it will expand its bond purchases to index-linked U.K. bond. But the program still ends Friday, something the pensions fund industry wants to see extended. Those yields
    TMBMKGB-10Y,
    4.448%
    TMBMKGB-30Y,
    4.718%    ,
    meanwhile, continue to creep higher.

    The National Federation of Independent Business small-business index showed confidence rising in September, but inflation a nagging problem. At noon Eastern we’ll hear from Cleveland Fed President Loretta Mester.

    Subscription-based private aviation company Flexjet plans to go public through a merger with SPAC Horizon Acquisition
    HZON,

    valuing it at $3.1 billion.

    The U.S.’s third-biggest railroad union will be back at the negotiating table with employers on Tuesday, after rejecting a deal and raising the possibility of crippling strikes.

    The Kremlin’s war hawks were thrilled at the devastating strikes across Ukraine on Monday. Now they want more. G-7 leaders are holding an emergency meeting to discuss the ramping up of the war.

    Amazon’s
    AMZN,
    -0.78%
    second Prime-Day like event kicks off Tuesday.

    Best of the web

    U.K. spy chief says Russians are starting to realize the cost of Putin’s war in Ukraine

    India’s biodegradable bags are in demand, and reviving its industry

    We are not at peace. The world needs to get ready for more sabotage

    One of the greatest transfers of intergenerational wealth is coming, says head of TIAA

    The chart

    This graphic by Visual Capitalist’s Truman Du, shows Disney’s
    DIS,
    -2.06%
    streaming empire — Disney+, Hulu, ESPN+ — is “giving Netflix
    NFLX,
    +2.33%
    a run for its money.”


    Visual Capitalist, Disney, Netflix quarterly reports

    The tickers

    These were the top searched tickers on MarketWatch as of 6 a.m. Eastern Time:

    Ticker

    		 Security name
    TSLA,
    -0.05%         		Tesla
    GME,
    -1.38%         		GameStop
    AMC,
    -2.76%         		AMC Entertainment Holdings
    AAPL,
    +0.24%         		Apple
    NIO,
    -3.49%         		NIO
    BBBY,
    -2.21%         		Bed Bath & Beyond
    APE,
    -6.53%         		AMC Entertainment Holdings preferred shares
    NVDA,
    -3.36%         		Nvidia
    TWTR,
    +2.40%         		Twitter
    AMD,
    -1.08%         		Advanced Micro Devices
    Random reads

    Everyone hail to this 2,560-pound pumpkin.

    “Where’s Tony gone?” Supply-chain woes hit (shudder) Frosted Flakes.

    Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

    Listen to the Best New Ideas in Money podcast with MarketWatch reporter Charles Passy and economist Stephanie Kelton.

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  • Nasdaq logs lowest close in over 2 years as stocks end lower for 4th straight session

    Nasdaq logs lowest close in over 2 years as stocks end lower for 4th straight session

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    U.S. stocks finished lower on Monday as all three major indexes fell for the fourth straight session and the Nasdaq Composite saw its lowest close in more than two years. The S&P 500
    SPX,
    -0.75%
    closed 27.27 points, or 0.8%, lower at 3,612.39. The Dow Jones Industrial Average
    DJIA,
    -0.32%
    finished 93.91 points, or 0.3%, lower at 29,202.88. The Nasdaq Composite
    COMP,
    -1.04%
    closed 110.30 points, or 1%, lower at 10,542.10, its lowest closing level since July 28, 2020, according to Dow Jones Market Data.

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

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

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    JPMorgan Chase & Co.
    JPM,
    -0.93%
    CEO Jamie Dimon warned investors on Monday that he expects markets to remain volatile for the foreseeable future, and that the S&P 500 could easily fall another 20% as the Federal Reserve continues to raise interest rates.

    Asked by CNBC about where he expects stocks to bottom, Dimon said he couldn’t say for sure, but that it’s easy to imagine the S&P 500 falling by another 20% as volatile markets become even more “disorderly” as rates continue to climb.

    “It may have a ways to go. It really depends on that soft-landing, hard-landing thing and since I don’t know the answer to that it’s hard to answer…it could be another easy 20%,” Dimon said.

    “The next 20% could be much more painful than the first. Rates going up another 100 basis points will be a lot more painful than the first 100 because people aren’t used to it, and I think negative rates, when all is said and done, will have been a complete failure.”

    Europe is already in a recession, Dimon said, and he expects a recession in the U.S. will arrive within “six to nine months.”

    An eventual economic downturn in the U.S. could range from “very mild to quite hard.” Ultimately, it will depend on the outcome of the war in Ukraine, Dimon added.

    Since it’s impossible to “guess” exactly how bad things might get for both the economy and markets, investors and companies should “be prepared” for the worst-case scenario, Dimon said.

    Companies should start shoring up their balance sheets now, Dimon said, adding that “if you need money, go raise it.”

    He also warned that cracks are starting to appear in credit markets, and that a full-blown panic could emerge somewhere in the universe of global debt.

    “The likely place you might see more of a crack or a little bit more of a panic is in credit markets. And it might be ETFs, it might be a country, it might be something you don’t suspect. If you make a list of all the credit crises…you cannot predict where they came from, although I think you can predict that this time it will happen,” he said.

    After assuring the public that the Fed would do its best to minimize the fallout for the U.S. economy, Federal Reserve Chairman Jerome Powell has recently adjusted his rhetoric to suggest that Americans likely won’t be spared from another recession as the Fed’s hopes for a “soft landing” dim.

    In September, the central bank cut its projections for U.S. economic growth to just 0.2% for 2022 and 1.2% in 2023.

    JPMorgan is already becoming “very conservative” with its lending standards, Dimon added. The New York-based megabank is expected to report third-quarter earnings on Friday.

    Dimon’s comments helped to drive U.S. stocks to their lows of the session on Monday as the main indexes were on track for a fourth day of losses. In recent trade, the S&P 500
    SPX,
    -0.75%
    was down 0.3%, the Dow Jones Industrial Average
    DJIA,
    -0.32%
    flat, and the Nasdaq Composite
    COMP,
    -1.04%
    off 0.5% as major indexes bounced off session lows.

    The longtime bank chief warned earlier this year that he saw an “economic hurricane” headed for the U.S. In August, he warned that chances of a “harder recession” were on the rise.

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  • Nasdaq closes at 2-year low after stocks fail to shake off Fed rate-hike gloom

    Nasdaq closes at 2-year low after stocks fail to shake off Fed rate-hike gloom

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    AP

    U.S. stocks finished with losses on Monday, sending the Nasdaq Composite to its lowest close in more than two years, after investors failed to shake off worries about further Federal Reserve rate hikes and JPMorgan Chase & Co.’s Jamie Dimon warned of a potential 20% decline in the S&P 500.

    How stocks traded
    • The Dow
      DJIA,
      -0.32%
      closed down by 93.91 points, or 0.3% at 29,202.88.

    • The S&P 500
      SPX,
      -0.75%
      finished down by 27.27 points, or 0.8%, at 3,612.39.

    • The Nasdaq Composite gave up 110.30 points, or 1%, to end at 10,542.10 — the lowest close since July 28, 2020.

    Monday’s declines exacerbated losses which occurred at the end of last week. On Friday, the Dow fell 630 points, or 2.1%, the S&P 500 declined 2.8%, and the Nasdaq Composite dropped 3.8%. The Nasdaq Composite was down 31.9% for the year to date through Friday.

    What drove markets

    Major indexes finished lower for a fourth consecutive session on Monday as concerns about additional rate hikes by the Fed continued to damp sentiment. Dow industrials, the S&P 500 and the Nasdaq all fell to session lows after a CNBC interview with Dimon, chief executive of JPMorgan
    JPM,
    -0.93%    ,
    who said the S&P 500 could fall by “another easy 20%” from current levels.

    Read: Here are the 5 times traders and stock-market investors got fooled by Fed ‘pivot’ hopes in past year

    Soft data a week ago had raised hopes that the Fed would soon pause its monetary tightening cycle in its battle to suppress multidecade high inflation, and the market subsequently rebounded off its near two-year lows. But a strong jobs report on Friday crushed that Fed “pivot” narrative and stocks plunged again.

    On Monday, the CBOE Vix index
    VIX,
    +3.48%    ,
    a gauge of expected S&P 500 volatility, sat at 32.15, well above its long-term average of 20.

    “The low interest-rate environment forced investors to chase yield and bid up the asset prices too high. Eventually the market is fair and asset values have to achieve some sense of common ground or base level valuation. So it was inevitable that this valuation correction would happen,” said Siddharth Singhai, chief investment officer for New York-based hedge fund IronHold Capital.

    “Panic will swing the market towards excessive pessimism and then the valuations will be too cheap. That hasn’t happened yet. Upcoming rate hikes will most likely be a catalyst for panic, however,” he wrote in an email to MarketWatch on Monday.

    Coming into Monday’s session, trading had been expected to be somewhat thinned by the Columbus Day and Indigenous People’s Day holiday, which closed the Treasury market.

    Now, traders are looking toward more data later in the week for further guidance on Fed thinking and equity valuations. The U.S. producer price numbers will be released on Wednesday and the consumer prices report on Thursday, the last of their kind before the Fed’s policy decision on Nov. 2.

    Then on Friday, third-quarter corporate earnings season really kicks into gear when big banks like JPMorgan
    JPM,
    -0.93%
    and Citigroup
    C,
    -1.40%
    present their numbers.

    Read: JPMorgan, Citi, Morgan Stanley and Wells Fargo kick off bank earnings season in choppy waters and S&P 500 would be in an ‘earnings recession’ if not for this one booming sector — but that may not last long

    Investors were also keeping an eye on the strong U.S. dollar, which is considered a drag on the earnings of U.S. multinationals. The dollar index
    DXY,
    +0.25%
    rose 0.3% to 113.12 as the euro intermittently broke below $0.97 after Russia sent missiles into cities across Ukraine.

    See: A rampaging U.S. dollar is wreaking havoc in financial markets. Here’s why it’s so hard to stop it.

    “We expect a lot more volatility in markets for the remainder of the year as the inevitability of higher rates sinks in and the economic consequences become more pronounced,” said Arthur Laffer Jr., president of Nashville-based Laffer Tengler Investments. Fed Chairman Jerome Powell “will not be a very popular person but it seems his legacy is focused on fighting any resurgence of 1970s inflation in the U.S. at all costs.”

    Companies in focus
    • Rivian Automotive Inc.
      RIVN,
      -7.28%
      intends to recall about 13,000 vehicles due to a possible safety issue that has so far been found to have affected several units, the company said Friday night. Shares finished down by 7.3%.

    • Tesla Inc.
      TSLA,
      -0.05%
      reported record monthly sales of China-made electric vehicles in September, as it continues to ramp production in the world’s number-two economy. The electric-vehicle maker delivered 83,135 EVs from its Shanghai plant in September, an 8% rise from August, according to a report by the China Passenger Car Association. Tesla shares nonetheless finished down by less than 0.1%.

    –— Jamie Chisholm contributed to this article.

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  • Ford stock is now a ‘sell’ at UBS as an oversupply problem looms

    Ford stock is now a ‘sell’ at UBS as an oversupply problem looms

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    Shares of Ford Motor Co. were hit hard Monday by UBS analyst Patrick Hummel’s recommendation that investors sell, as the auto industry is facing a worrisome U-turn from undersupply to oversupply.

    Hummel also cut his ratings on several other global auto makers, including General Motors Co.
    GM,
    -5.59%    ,
    saying that as a recession concerns grow, “demand destruction is no longer a vague risk.”

    In addition to all of the data suggesting the economy is slowing, Hummel said growing U.S. dealer inventories, weak used-car pricing, used-car dealer profit warnings and signs indicating deteriorating orders and shorter delivery times make him more cautious on the overall auto industry.

    Don’t miss: CarMax stock suffered biggest selloff since the year 2000, as inflation, low consumer confidence lead to big profit miss.

    “We think it will only take 3-6 months for the auto industry to end up in oversupply, which will put an abrupt end to a 3-year phase of unprecedented OEM [original equipment manufacturer] pricing power and margins,” Hummel wrote in a note to clients.

    As part of his negative industry outlook, he cut his rating on Ford
    F,
    -7.38%
    to sell from neutral and his stock price target to $10 from $13, with the new target implying about 11% downside from current levels.

    Ford’s stock sank 7.6% in morning trading. It was trading up just 0.6% month to date, after plunging 26.5% in September to suffer its worst monthly performance since it plummeted 30.6% during pandemic-stricken March 2020.

    Hummel noted that Ford has already warned about having more vehicles in inventory than expected, and above payments to suppliers running about $1 billion higher than projected, so he sees little margin left for negative surprises in terms of fourth-quarter deliveries and supply costs.

    Hummel cut his 2023 adjusted earnings-per-share estimate by 61% to 52 cents a share, to reflect a $6.5 billion drop in price and sales mix. The compares with the current 2023 FactSet EPS consensus of $1.87.

    “This sounds very negative, but Ford gains $19 billion in price alone since the beginning of 2020,” Hummel wrote.

    Also read: Ford again raises price of F-150 Lightning electric pickup.

    Read more: Ford September sales fall as drop in trucks offsets near tripling in EVs.

    Meanwhile, GM’s stock dove 6.9% in morning trading toward a three-month low, and shares have shed 2.5% so far this month after tumbling 16% last month.

    Hummel downgraded GM to neutral from buy, and dropped his price target by 32%, to $38 from $56.

    The rating remains above Ford’s, because unlike its rival, Hummel noted that GM has had “no hiccups” in its third-quarter production schedule and therefore a “solid” quarterly report is expected. However, the downgrade reflects the fact that GM is “not immune” to a downturn in the industry.

    Separately, Hummel also cut his stock-price target on Tesla Inc.
    TSLA,
    -0.16%
    to $350 from $367, saying that following a third-quarter volume report that was below expectations, it will be “more challenging” for the electric-vehicle maker to meet its 2022 delivery growth target.

    However, Hummel reiterated his buy rating on Tesla, as he believes the EV maker is best positioned to use pricing as the tool to fill its factories.

    “Overall, the recession outlook should result in moderately lower margins for Tesla than previously expected, but we’re highly confident that by keeping the top line [revenue] momentum, Tesla will even widen the gap vs. competitors in terms of profitability,” Hummel wrote.

    Ford’s stock has fallen 3% over the past three months, while GM shares have lost 3.1% and Tesla’s stock has dropped 11.8%. In comparison, the S&P 500 index
    SPX,
    -1.08%
    has declined 7.5% the past three months.

    Among other auto makers, he also downgraded both Renault SA
    RNO,
    +2.41%

    RNLSY,
    +1.17%
    and Volkswagen AG
    VOW,
    -3.29%
    to neutral from buy. He also downgraded auto parts makers Continental AG
    CON,
    +0.10%
    and Faurecia SE
    EO,
    -3.77%

    FURCF,
    -3.67%
    to neutral from buy.

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  • Stock futures struggle for direction amid Fed rate-hike gloom

    Stock futures struggle for direction amid Fed rate-hike gloom

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    U.S. stock futures were looking for direction Monday as worries about Fed rate rises persisted, with major indexes trading not far off their 2022 lows set at the end of last month.

    Investors were looking ahead to key inflation data due later this week, as well as minutes of the Fed’s September policy meeting and the start of earnings season.

    How stocks are trading
    • S&P 500 futures
      ES00,
      -0.04%
      erased earlier losses to tick up 3.50 points, or 0.1%, to 3,656.75.

    • Dow Jones Industrial Average futures
      YM00,
      +0.34%
      rose 63 points, or 0.2%, to 29,416.

    • Nasdaq 100 futures
      NQ00,
      -0.54%
      were down 9.50 points, or 0.1%, at 11,092.

    On Friday, the Dow Jones Industrial Average
    DJIA,
    +0.11%
    fell 630 points, or 2.1%, the S&P 500
    SPX,
    -0.31%
    declined 2.8%, and the Nasdaq Composite
    COMP,
    -2.61%
    dropped 3.8%. The Nasdaq Composite was down 31.9% for the year to date through Friday.

    What’s driving markets

    U.S. stocks were in line for a fourth consecutive session of losses as concerns about additional interest rate rises by the Federal Reserve continued to dampen sentiment.

    Trading was expected to be somewhat thinned by the Columbus Day and Indigenous People’s Day holiday, which closed the Treasury market.

    Soft data a week ago raised hopes that the Fed would soon pause its monetary tightening cycle in its battle to suppress multi-decade high inflation, and the market subsequently rebounded off its near two-year lows. But a strong jobs report on Friday crushed that Fed “pivot” narrative and stocks plunged again.

    See: Why stock-market investors keep falling for Fed ‘pivot’ talk — and what it will take to put in a bottom

    The 5-day round trip saw an average move for the S&P 500 of 1.9%. Little surprise then that the CBOE Vix index
    VIX,
    +5.20%    ,
    a gauge of expected S&P 500 volatility, sat on Monday at 31.4, more than 50% above its long term average of 20.

    “The market response to Friday’s U.S. jobs report was characteristic of a bear market in equities. U.S. indices reversed sharply in the absence of the bad economic news required to shake the Fed’s hawkish determination,” said Ian Williams, strategist at Peel Hunt.

    Now traders will look toward more data due later in the week for further guidance on Fed thinking and equity valuations.

    The U.S. producer price numbers will be released on Wednesday and the consumer prices report on Thursday, the last of their kind before the Fed’s rate-setting meeting on Nov. 2.

    Then on Friday, third-quarter corporate earnings season really kicks into gear when big banks like JPMorgan
    JPM,
    +0.47%
    and Citigroup
    C,
    -0.31%
    present their numbers.

    Read: JPMorgan, Citi, Morgan Stanley and Wells Fargo kick off bank earnings season in choppy waters

    “The estimated earnings growth rate for the S&P 500 is 2.4%. If 2.4% is the actual
    growth rate for the quarter, it will mark the lowest earnings growth rate reported by the index since Q3 2020 (-5.7%),” said John Butters, senior earnings analyst at Factset.

    Further hurting risk appetite on Monday was additional gains for the dollar, whose strength is considered a drag on the earnings of U.S. multinationals. The dollar index
    DXY,
    +0.28%
    rose 0.3% to 113.15 as the euro broke back below $0.97 after Russia sent missiles into cities across Ukraine.

    Companies in focus
    • Rivian Automotive Inc.
      RIVN,
      -8.25%
      intends to recall about 13,000 vehicles due to a possible safety issue that has so far been found to have impacted several units, the company said Friday night. Shares were down 7.1% in premarket trade.

    • Tesla Inc.
      TSLA,
      +0.06%
      reported record monthly sales of China-made electric vehicles in September, as it continues to ramp production in the world’s number-two economy. The electric-vehicle maker delivered 83,135 EVs in September, an 8% rise from August, according to a report by the China Passenger Car Association on Sunday. Tesla shares were down 0.2%.

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  • Rivian stock sinks toward 3-month low in wake of vehicle recall for safety issue

    Rivian stock sinks toward 3-month low in wake of vehicle recall for safety issue

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    Shares of Rivian Automotive Inc.
    RIVN,
    -7.64%
    sank 8.8% toward a three-month low in premarket trading, in the wake of the electric vehicle maker’s large vehicle recall due to steering problems. The company said late Friday that it intends to recall about 13,000 vehicles, which The Wall Street Journal reported was to repair improperly installed fasteners that could cause drivers to lose steering control. The company said it was “committed to fixing this issue” as quickly as possible. The stock, which sank 7.6% on Friday prior to the report of the recall, has plunged 67.3% year to date while the S&P 500
    SPX,
    -2.80%
    has shed 23.6%.

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  • Will the stock market be open on Columbus Day?

    Will the stock market be open on Columbus Day?

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    It’s a regular day of business for the U.S. stock market on Monday, October 10, as equity exchanges stay open for Columbus Day, a federal holiday that also has been recognized as Indigenous Peoples’ Day.

    Bond markets, however, take the day off, which means a long weekend for the Treasury market, corporate bonds and other forms of tradable debt, starting after the close of business on Friday.

    Stocks have endured a brutal selloff in the first nine months of the year as the Federal Reserve has worked to fight inflation that’s been stuck near it highest levels since the early 1980s.

    See: Why stock-market bulls keep falling for Fed ‘pivot’ feints — and what it will take to put in a bottom

    The central bank’s main tool to battle inflation has been to dramatically increase interest rates, while also shrinking its balance sheet, in an effort to tighten financial conditions and squelch demand for goods and services, while also bringing down stubbornly high costs of living, including food, shelter and energy prices.

    The Fed’s focus in recent months also has been on cooling the roaring labor market, with strong wage gains in the past year viewed as one of several culprits behind elevated inflation.

    Friday’s jobs report for September pegged the unemployment rate as matching a prepandemic low of 3.5%, dashing hopes for now of a significant trend toward a pullback in the labor market.

    The S&P 500 index
    SPX,
    -2.80%
    tumbled 2.8% on Friday, the Dow Jones Industrial Average
    DJIA,
    -2.11%
    fell 630.15 points, or 2.1%, and the Nasdaq Composite Index
    COMP,
    -3.04%
    dropped 3.8%. An early October rally had offered some hope for a bounce for stocks, after a brutal first nine months for investors.

    Bonds also have undergone a painful repricing this year as volatility tied to the Fed’s monetary tightening campaign has eroded the value of bonds issued in the past decade of low rates.

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

    The S&P 500 is down about 24% for the year, while the Dow is off 19% and the Nasdaq nearly 32%.The 10-year Treasury rate
    TMUBMUSD10Y,
    3.889%
    was near 3.9% Friday, after recently touching 4%, it’s highest since 2010

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  • Will the stock market be open on Columbus Day?

    Will the stock market be open on Columbus Day?

    [ad_1]

    It’s a regular day of business for the U.S. stock market on Monday, October 10, as equity exchanges stay open for Columbus Day, a federal holiday that also has been recognized as Indigenous Peoples’ Day.

    Bond markets, however, take the day off, which means a long weekend for the Treasury market, corporate bonds and other forms of tradable debt, starting after the close of business on Friday.

    Stocks have endured a brutal selloff in the first nine months of the year as the Federal Reserve has worked to fight inflation that’s been stuck near it highest levels since the early 1980s.

    The central bank’s main tool to battle inflation has been to dramatically increase interest rates, while also shrinking its balance sheet, in an effort to tighten financial conditions and squelch demand for goods and services, while also bringing down stubbornly high costs of living, including food, shelter and energy prices.

    The Fed’s focus in recent months also has been on cooling the roaring labor market, with strong wage gains in the past year viewed as one of several culprits behind elevated inflation.

    Friday’s jobs report for September pegged the unemployment rate as matching a prepandemic low of 3.5%, dashing hopes for now of a significant trend toward a pullback in the labor market.

    The S&P 500 index
    SPX,
    -3.03%
    tumbled 1.9% on Friday, the Dow Jones Industrial Average
    DJIA,
    -2.39%
    was down 1.5% and the Nasdaq Composite Index
    COMP,
    -3.89%
    was off 2.6%. And early October rally had offered some hope for a bounce for stocks, after a brutal first nine months for investors.

    Bonds also have undergone a painful repricing this year as volatility tied to the Fed’s monetary tightening campaign has eroded the value of bonds issued in the past decade of low rates.

    The S&P 500 is down about 23% for the year, the Dow off 19% and the Nasdaq off 31% since January. The 10-year Treasury rate
    TMUBMUSD10Y,
    3.884%
    was near 3.9% Friday, after recently touching 4%, it’s highest since 2010

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  • Credit Suisse makes $2.98 billion debt-repurchase offers

    Credit Suisse makes $2.98 billion debt-repurchase offers

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    Credit Suisse Group AG said Friday that it is offering to repurchase debt securities for a total of close to $3 billion as the troubled lender looks to manage its liabilities ahead of a touted restructuring.

    The Swiss bank
    CS,
    +1.66%

    CSGN,
    +3.13%
    is offering to buy back eight euro- or pound sterling-denominated senior debt securities for a total of up to 1 billion euros ($979.2 million,) it said.

    It is also offering to buy back 12 U.S. dollar-denominated securities for up to $2 billion. Both offers are subject to various conditions and will expire on Nov. 3 and Nov. 10, respectively, Credit Suisse said.

    The value of some Credit Suisse bonds fell at the beginning of this week alongside shares in the lender amid speculation over its financial health. The bank has moved to reassure investors ahead of a planned strategy update due on Oct. 27 alongside quarterly results.

    Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby

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  • U.S. stocks finish choppy session with losses, snap 2-day winning streak as investors assess positive economic data

    U.S. stocks finish choppy session with losses, snap 2-day winning streak as investors assess positive economic data

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    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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  • U.S. stock futures weaken after best start to a quarter since 1938

    U.S. stock futures weaken after best start to a quarter since 1938

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    U.S. stock index futures dipped on Wednesday as a more cautious tone prevailed following a strong start to the fourth quarter.

    How are stock index-futures trading
    • S&P 500 futures
      ES00,
      -0.80%
      dipped 31 points, or 0.8%, to 3772

    • Dow Jones Industrial Average futures
      YM00,
      -0.80%
      fell 242 points, or 0.8%, to 30123

    • Nasdaq 100 futures
      NQ00,
      -0.82%
      eased 90 points, or 0.8%, to 11550

    On Tuesday, the Dow Jones Industrial Average
    DJIA,
    +2.80%
    rose 825 points, or 2.8%, to 30316, the S&P 500
    SPX,
    +3.06%
    increased 113 points, or 3.06%, to 3791, and the Nasdaq Composite
    COMP,
    +7.79%
    gained 361 points, or 3.34%, to 11176. The Nasdaq Composite was up 5.7% from its 52-week closing low, but it remains down 28.6% for the year to date.

    What’s driving markets

    Wall Street was on course Wednesday for a relatively mild pullback, as stock index futures suffered some selling after a sturdy rally over the past two sessions.

    The S&P 500 has just enjoyed its largest two day percentage gain since April 2020, 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.

    However, recent soft U.S data, covering job openings and manufacturing, have encouraged some traders to trim bets on aggressive Fed interest rate rises.

    A week ago markets were forecasting the Fed’s benchmark interest rate would peak at nearly 4.8% by April 2023, but that figure has come down to 4.5%.

    Atlanta Fed President Raphael Bostic will speak at 4 p.m. Eastern.

    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.

    This view that oversold conditions and overly bearish sentiment was a key contributor to the latest advance was endorsed by Tom Lee, head of research at Fundstrat, though he accepted that bulls may be chastened by the recent past.

    “Given the generally poor win-ratio for rallies in 2022, investors are naturally viewing the gains over the past two days as just another ‘bear market rally’,” said Lee in a note to clients.

    Still, a number of shifting factors suggest the positive run could continue according to Lee.

    These included the dip in Fed fund futures; a 5% pullback in the dollar index
    DXY,
    +0.73%
    ; and the Vix volatility index
    VIX,
    +1.07%
    moving back below 30 with Vix futures back in contango.

    In addition: “the Nasdaq 100 was ‘100% bid’ Tuesday…since 1996, this has only happened 6 times, and 6 of 6 times the [Nasdaq 100] is higher 6M and 12M later with average gains of 27% and 34%,” said Lee.

    U.S. economic updates set for release on Wednesday include the September ADP employment report at 8:15 a.m.; international trade balance data for August at 8:30 a.m.; the September S&P Global service sector PMI survey at 9:45 a.m.; and the September ISM services report at 10 a.m.

    The ADP report sets up the market for heightened nervousness when the nonfarm payrolls data for September is published at the end of the week.

    “All eyes are on the employment data on Friday, which has priced in tremendous one day volatility in the options market,” said Stephen Innes, managing partner at SPI Asset Management.

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  • 21 dividend stocks yielding 5% or more of companies that will produce plenty of cash in 2023

    21 dividend stocks yielding 5% or more of companies that will produce plenty of cash in 2023

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    When the stock market has jumped two days in a row, as it has now, it is easy to become complacent.

    But the Federal Reserve isn’t finished raising interest rates, and recession talk abounds. Stock investors aren’t out of the woods yet. That can make dividend stocks attractive if the yields are high and the companies produce more cash flow than they need to cover the payouts.

    Below is a list of 21 stocks drawn from the S&P Composite 1500 Index
    SP1500,
    +3.12%
    that appear to fit the bill. The S&P Composite 1500 is made up of the S&P 500
    SPX,
    +3.06%    ,
    the S&P 400 Mid Cap Index
    MID,
    +3.18%
    and the S&P Small Cap 600 Index
    SML,
    +3.80%    .

    The purpose of the list is to provide a starting point for further research. These stocks may be appropriate for you if you are looking for income, but you should do your own assessment to form your own opinion about a company’s ability to remain competitive over the next decade.

    Cash flow is key

    One way to measure a company’s ability to pay dividends is to look at its free cash flow yield. Free cash flow is remaining cash flow after planned capital expenditures. This money can be used to pay for dividends, buy back shares (which can raise earnings and cash flow per share), or fund acquisitions, organic expansion or for other corporate purposes.

    If we divide a company’s estimated annual free cash flow per share by its current share price, we have its estimated free cash flow yield. If we compare the free cash flow yield to the current dividend yield, we may see “headroom” for cash to be deployed in ways that can benefit shareholders.

    For this screen, we began with the S&P Composite 1500, then narrowed the list as follows:

    • Dividend yield of at least 5.00%.

    • Consensus free cash flow estimate available for calendar 2023, among at least five analysts polled by FactSet. We used calendar-year estimates, even though fiscal years for many companies don’t match the calendar.

    • Estimated 2023 free cash flow yield of at least double the current dividend yield.

    For real-estate investment trusts, dividend-paying ability is measured by funds from operations (FFO), a non-GAAP figure that adds depreciation and amortization back to earnings. Adjusted funds from operations (AFFO) takes this a step further, subtracting cash expected to be used to maintain properties. So for the two REITs on the list, the FCF yield column makes use of AFFO.

    For many companies in the financial sector, especially banks and insurers, free cash flow figures aren’t available, so the screen made use of earnings-per-share estimates. These are generally considered to run close to actual cash flow for these heavily regulated industries.

    Here are the 21 companies that passed the screen, with dividend yields of at least 5% and estimated 2023 FCF yields at least twice the current payout. They are sorted by dividend yield:

    Company

    		 Ticker

    		 Type

    		 Dividend yield

    		 Estimated 2023 FCF yield

    		 Estimated “headroom”
    Uniti Group Inc.

    		 UNIT,
    +7.36%         		Real-Estate Investment Trusts

    		 8.33%

    		 25.25%

    		 16.92%
    Hanesbrands Inc.

    		 HBI,
    +5.56%         		Apparel/ Footwear

    		 8.33%

    		 17.29%

    		 8.96%
    Kohl’s Corp.

    		 KSS,
    +5.80%         		Department Stores

    		 7.68%

    		 16.72%

    		 9.04%
    Rent-A-Center Inc.

    		 RCII,
    +10.40%         		Finance/ Rental/ Leasing

    		 7.52%

    		 17.26%

    		 9.73%
    Macerich Co.

    		 MAC,
    +8.18%         		Real-Estate Investment Trusts

    		 7.43%

    		 18.04%

    		 10.60%
    Devon Energy Corp.

    		 DVN,
    +5.72%         		Oil & Gas Production

    		 7.13%

    		 14.47%

    		 7.33%
    AT&T Inc.

    		 T,
    +1.19%         		Major Telecommunications

    		 6.98%

    		 14.82%

    		 7.84%
    Newell Brands Inc.

    		 NWL,
    +5.16%         		Industrial Conglomerates

    		 6.59%

    		 17.42%

    		 10.82%
    Dow Inc.

    		 DOW,
    +2.96%         		Chemicals

    		 6.18%

    		 15.63%

    		 9.45%
    LyondellBasell Industries NV

    		 LYB,
    +3.64%         		Chemicals

    		 6.09%

    		 16.07%

    		 9.99%
    Scotts Miracle-Gro Co. Class A

    		 SMG,
    +5.01%         		Chemicals

    		 6.04%

    		 12.68%

    		 6.65%
    Diamondback Energy Inc.

    		 FANG,
    +5.23%         		Oil & Gas Production

    		 5.56%

    		 13.63%

    		 8.08%
    Best Buy Co. Inc.

    		 BBY,
    +5.86%         		Electronics/ Appliance Stores

    		 5.53%

    		 14.08%

    		 8.55%
    Viatris Inc.

    		 VTRS,
    +5.62%         		Pharmaceuticals

    		 5.50%

    		 28.95%

    		 23.45%
    Prudential Financial Inc.

    		 PRU,
    +5.66%         		Life/ Health Insurance

    		 5.38%

    		 13.30%

    		 7.91%
    Ford Motor Co.

    		 F,
    +7.76%         		Motor Vehicles

    		 5.23%

    		 15.95%

    		 10.72%
    Invesco Ltd.

    		 IVZ,
    +6.76%         		Investment Managers

    		 5.23%

    		 14.95%

    		 9.73%
    Franklin Resources Inc.

    		 BEN,
    +4.37%         		Investment Managers

    		 5.17%

    		 13.21%

    		 8.04%
    Kontoor Brands Inc.

    		 KTB,
    +0.73%         		Apparel/ Footwear

    		 5.17%

    		 14.15%

    		 8.98%
    Seagate Technology Holdings PLC

    		 STX,
    +4.09%         		Computer Peripherals

    		 5.11%

    		 13.19%

    		 8.07%
    Foot Locker Inc.

    		 FL,
    +1.35%         		Apparel/ Footwear Retail

    		 5.03%

    		 15.52%

    		 10.49%
    Source: FactSet

    Any stock screen has its limitations. If you are interested in stocks listed here, it is best to do your own research, and it is easy to get started by clicking the tickers in the table for more information about each company. Click here for Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.

    For the “estimated FCF yields,” consensus free cash flow estimates for calendar 2023 were used for all companies except the following:

    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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  • History shows S&P 500’s bounce from 2022 low may not signal bear market’s end, cautions Bespoke

    History shows S&P 500’s bounce from 2022 low may not signal bear market’s end, cautions Bespoke

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    The U.S. stock market is heading higher again Tuesday, with the S&P 500 index continuing to climb above its 2022 low, but Bespoke Investment Group cautions that history shows its recent bounce may not signal the bear market’s end.

    Bespoke’s research on first-day gains from bear-market lows found that bear markets typically end with even bigger moves than the one seen Monday, when the S&P 500 jumped 2.6%. The average move higher is “actually above 4%!” the firm wrote in an Oct. 3 note. 


    BESPOKE INVESTMENT GROUP NOTE DATED OCT. 3, 2022

    U.S. stocks are trading up this week as Treasury yields fall and the soaring U.S. dollar loses some of its strength. The market moves come as investors look for any hints that the Federal Reserve might back off from its aggressive tightening of monetary policy.

    Read: A Bear Stearns moment awaits if actions like the Bank of England intervention don’t calm markets, BofA analysts say

    On Monday, “markets clearly benefitted from huge declines in yields, which benefitted from Richmond Fed President Barkin echoing Governor Brainard’s speech Friday with concerns about the impact of dollar strength,” Bespoke said in its note. The reversal of the U.S. dollar, along with lower yields and higher stocks, showed investors “clearly bought that concern as the latest source of potential Fed dovishness.”

    Bespoke was referring to comments by Fed Vice Chair Lael Brainard and Thomas Barkin, president of the Federal Reserve Bank of Richmond.

    While the U.S. dollar’s strength has eased this week, the ICE US Dollar index
    DXY,
    -1.20%
    is still up around 15% so far this year, according to FactSet data, at last check. The dollar has climbed as the Fed tightens monetary policy to combat high inflation. 

    “On balance, dollar appreciation tends to reduce import prices in the United States,” Brainard said in her speech Friday addressing global financial stability considerations. “But in some other jurisdictions, the corresponding currency depreciation may contribute to inflationary pressures and require additional tightening to offset.”

    The Fed is “attentive to financial vulnerabilities that could be exacerbated by the advent of additional adverse shocks,” Brainard said in her speech. “For instance, in countries where sovereign or corporate debt levels are high, higher interest rates could increase debt-servicing burdens and concerns about debt sustainability, which could be exacerbated by currency depreciation.”

    Read: U.S. dollar’s dominance tends to hurt these sectors of the stock market less, says RBC

    As for the decline in Treasury yields, the 10-year Treasury note dropped 15.2 basis points Monday to 3.650%, while two-year Treasury yield fell 10.3 basis points to 4.103%, according to Dow Jones Market Data. Treasury yields continued to dip on Tuesday, with the two-year
    TMUBMUSD02Y,
    4.104%
    at 4.08% and the 10-year
    TMUBMUSD10Y,
    3.621%
    falling to 3.60%, FactSet data show, at last check.  

    Read: Why 2-year Treasury yields are ‘the base problem’ for the struggling stock market, according to this Morgan Stanley portfolio manager 

    Meanwhile, the ICE US Dollar index, a measure of the dollar’s strength against a basket of rival currencies, was down more than 1% around midday Tuesday. 

    The U.S. stock market was moving sharply higher again on Tuesday, with the Dow Jones Industrial Average
    DJIA,
    +2.17%
    jumping 2.6%, the S&P 500
    SPX,
    +2.40%
    climbing 2.9% and the Nasdaq Composite
    COMP,
    +2.66%
    surging 3.3%, FactSet data show, at last check.

    But after this week’s bounce, the S&P 500 remains down more than 20% this year, based on trading around midday Tuesday.

    “It’s easy to read-in to very high two-way volatility across assets as signaling a Fed pivot is finally here, but we just haven’t seen any reason for that,” Bespoke said. “Until the Fed durably shifts away from their concern over inflation, headwinds for stocks and bonds alongside tailwinds for the dollar will continue.”

    Also read: Rising interest rates, economic slowdown and higher unemployment will drive U.S. households to sell more stocks in 2023: Goldman Sachs

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  • What investors need to know about October’s complicated stock-market history

    What investors need to know about October’s complicated stock-market history

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    While September lived up to its reputation as a brutal month for stocks, October tends to be a “bear-market killer,” associated with historically strong returns, especially in midterm election years.

    Skeptics, however, are warning investors that negative economic fundamentals could overwhelm seasonal trends as what’s traditionally the roughest period for equities comes to an end.

    Rough stretch

    U.S. stocks ended sharply lower on Friday, posting their worst skid in the first nine months of any year in two decades. The S&P 500
    SPX,
    -1.51%
    recorded a monthly loss of 9.3%, its worst September performance since 2002. The Dow Jones Industrial Average
    DJIA,
    -1.71%
    fell 8.8%, while the Nasdaq Composite
    COMP,
    -1.51%
    on Friday pushed its total monthly loss to 10.5%, according to Dow Jones Market Data. 

    Read: Stocks and bonds are ‘discounting for a disaster’ after the worst stretch for investors in 20 years

    The indexes had booked modest gains in the first half of the month after investors fully priced in a large interest-rate hike at the FOMC meeting late September as August’s inflation data showed little sign of easing price pressures. However, the central bank’s more-hawkish-than-expected stance caused stocks to give up all those early September gains. The Dow entered its first bear market since March 2020 in the last week of the month, while the benchmark S&P slid to another 2022 low. 

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

    Bear markets and midterms

    October’s track record may offer some comfort as it has been a turnaround month, or a “bear killer,” according to the data from Stock Trader’s Almanac. 

    “Twelve post-WWII bear markets have ended in October: 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001, 2002 and 2011 (S&P 500 declined 19.4%),” wrote Jeff Hirsch, editor of the Stock Trader’s Almanac, in a note on Thursday. “Seven of these years were midterm bottoms.”

    Of course 2022 is also a midterm election year, with congressional elections coming up on Nov. 8.

    According to Hirsch, Octobers in the midterm election years are “downright stellar” and usually where the “sweet spot” of the four-year presidential election cycle begins (see chart below).

    “The fourth quarter of the midterm years combines with the first and second quarters of the pre-election years for the best three consecutive quarter span for the market, averaging 19.3% for the DJIA and 20.0% for the S&P 500 (since 1949), and an amazing 29.3% for NASDAQ (since 1971),” wrote Hirsch. 

    SOURCE: STOCKTRADERSALMANAC

    ‘Atypical period’

    Skeptics aren’t convinced the pattern will hold true this October. Ralph Bassett, head of investments at Abrdn, an asset-management firm based in Scotland, said these dynamics could only play out in “more normalized years.” 

    “This is just such an atypical period for so many reasons,” Bassett told MarketWatch in a phone interview on Thursday. “A lot of mutual funds have their fiscal year-end in October, so there tends to be a lot of buying and selling to manage tax losses. That’s kind of something that we’re going through and you have to be very sensitive to how you manage all of that.”

    An old Wall Street adage, “Sell in May and go away,” refers to the market’s historical underperformance during the six-month period from May to October. Stock Trader’s Almanac, which is credited with coining the saying, found investing in stocks from November to April and switching into fixed income the other six months would have “produced reliable returns with reduced risk since 1950.”

    Strategists at Stifel, a wealth-management firm, contend the S&P 500, which has fallen more than 23% from its Jan. 3 record finish, is in a bottoming process. They see positive catalysts between the fourth quarter of 2022 and the start of 2023 as Fed policy plus S&P 500 negative seasonality are headwinds that should subside by then.

    “Monetary policy works with a six-month lag, and between the [Nov. 2] and [Dec. 14] final two Fed meetings of 2022, we do see subtle movement toward a data-dependent Fed pause which would bullishly allow investors to focus on (improving) inflation data rather than policy,” wrote strategists led by Barry Bannister, chief equity strategist, in a recent note. “This could reinforce positive market seasonality, which is historically strong for the S&P 500 from November to April.” 

    October crashes

    Seasonal trends, however, aren’t written in stone. Dow Jones Market Data found the S&P 500 recorded positive returns between May and October in the past six years (see chart below).

    SOURCE: FACTSET, DOW JONES MARKET DATA

    Anthony Saglimbene, chief markets strategist at Ameriprise Financial, said there are periods in history where October could evoke fear on Wall Street as some large historical market crashes, including those in 1987 and 1929, occurred during the month.

    “I think that any years where you’ve had a very difficult year for stocks, seasonality should discount it, because there are some other macro forces [that are] pushing on stocks, and you need to see more clarity on those macro forces that are pushing stocks down,” Saglimbene told MarketWatch on Friday. “Frankly, I don’t think we’re going to see a lot of visibility at least over the next few months.”

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