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Bank of America Reports Earnings Monday. What Wall Street Is Watching.
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Tag: investing
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Bearish Bets: 3 Stocks You Should Think About Shorting This Week
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Each week we identify names that look bearish and may present interesting investing opportunities on the short side.
Using technical analysis of the charts of those stocks, and, when appropriate, recent actions and grades from TheStreet’s Quant Ratings, we zero in on three names.
While we will not be weighing in with fundamental analysis, we hope this piece will give investors interested in stocks on the way down a good starting point to do further homework on the names.
Plug Power Looks Unplugged
Plug Power Inc. (PLUG) recently was downgraded to Sell with a D+ rating by TheStreet’s Quant Ratings.
One of the better fuel cell names of late, Plug Power has fallen sharply on very strong turnover and it appears the downside is not finished. Money flow is weak while moving average convergence divergence (MACD) is on a sell signal.
There is just nothing here to support the stock until the May lows are reached. That level comes in around the $13 area, so a short right here at $18.60 makes a nice objective to the May lows. Put in a stop at $22.50 just in case. If that May low falls we’ll see PLUG make a run to single digits.
Dominion Energy Runs Out of Juice
Dominion Energy Inc. (D) recently was downgraded to Hold with a C+ rating by TheStreet’s Quant Ratings.
The electricity and natural gas supplier has been falling hard for about a month. The decline started in early September; now the stock is in a major tailspin with no buyers in sight.
The money flow shows the emphatic selling across the board. Relative strength is bending lower at a very steep angle; there seems to be more downside, if you can believe that! Support was knifed through at the $72 level and a waterfall move has happened since. How about a short play here at $63, adding more to the position with a move up to $67 and targeting the $50 level. Put in a stop at $65.
Bruker’s Diagnosis Isn’t Good
Bruker Corp. BRKR recently was downgraded to Hold with a C+ rating by TheStreet’s Quant Ratings.
The maker of scientific instruments and diagnostic tools has a very odd chart formation. We don’t often see these V patterns roll over so quickly, but that is the case here.
Withering money flow and a stall out in relative strength plagues the stock. Volume trends have strengthened and are leaning bearish, and the cloud is red, too — that foretells more downside to come. There is some support here at the apex of the V bottom, but not much more beyond that. Take a short here, put a stop in at $58 and ride this down to $45.
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Dear Penny: Did My Wife Make a Huge Mistake by Investing Her Inheritance?
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Dear Penny,My wife and I are middle class or maybe upper middle class. I make pretty good money. I pay all of our bills, mortgage, both cars, insurance and healthcare bills (which is $2,000 per month). She is a social worker and only makes enough to cover her personal needs and spending money.
We have a modest savings account (about $50,000) and a small retirement account ($200,000). We also have some real estate holdings, which will fund our retirement when liquidated in 15 years. We are in our early 40s.
She inherited about $60,000 from her grandfather. She asked me what I thought she should do with it. I told her that she should do whatever she wants with it. But I told her my advice is to come up with a plan. She should figure out how much she would want to save. She had mentioned putting some in our son’s college fund and some travel. My advice was not to waste it and to have a budget and stick to it.
Without telling me, she put about $40,000 into an IRA and $10,000 into our child’s college account (529 plan). So about $50,000 of the $60,000 she put into accounts that we can’t get to for 20 to 30 years.
Knowing her grandfather well, that is not how he would have wanted her to spend the money. He would have anticipated her traveling and spending it on stuff that makes her happy, not locking it up for years.
This all happened this calendar year. My question is: Is there a way to get the money out of the IRA without paying a penalty? A financial mulligan?
-S.
Dear S.,
Is this really about what Grandpa would have wanted? Or are you saying that you’re disappointed that your wife isn’t spending her inheritance on fun stuff?
Regardless, it sounds like your wife followed your advice. She didn’t let the money go to waste. Investing money when you don’t have a pressing need for it sounds like a solid plan.
And to be clear, this is her decision, not yours. Inheritances are treated as separate property, i.e., belonging to the spouse who got the inheritance, rather than marital property.
But if your wife’s plans change and she wants her money before retirement age, the “financial mulligan” you’re seeking may be possible, depending on what type of individual retirement account (IRA) the money is in.
With most IRAs, people under 50 can’t contribute more than $6,000 to an IRA in 2022, while people 50 and older can kick in an extra $1,000. Since your wife put $40,000 into an IRA, I’m guessing this is an inherited IRA.
An inherited IRA is a special type of IRA that you can open when you inherit someone else’s retirement account. The rules for withdrawing money from inherited IRAs are a lot different from the rules for regular IRAs. They also changed significantly with the passage of the Setting Every Community Up for Retirement (SECURE) Act in 2019.
Under the SECURE Act rules, if you inherit an IRA from a non-spouse who died in 2020 or later, you aren’t required to take annual distributions. But you must deplete the entire account within 10 years of your loved one’s death unless one of a handful of exceptions applies.
You can withdraw this money at any time, either all at once or in increments. You won’t pay a 10% early withdrawal penalty. But unless the inherited account was a Roth IRA, you’d owe ordinary income taxes on any withdrawals. So assuming your wife put this money into an inherited IRA, she hasn’t locked up the $40,000 for decades. And she’ll only have 10 years to withdraw that money, even though she won’t have reached retirement age.
Because of the complexity surrounding inherited IRAs and the potential for a huge tax bill, I’d suggest your wife consult with a tax professional. But overall, I like how she’s managed her inheritance so far. Investing the money primarily for retirement and your son’s education means more money for fun stuff down the road. And let’s not forget, there’s still about $10,000 left from this inheritance that your wife could use on a splurge.
When you receive a windfall, it’s tempting to spend the money on things that will make you happy right now. If you’re on track for your financial goals, it’s fine to indulge a bit. But if you don’t have a short-term need, the best plan is often to do next to nothing by parking the money in a low-cost index fund and letting it grow.
If you’re disappointed by how your wife is spending her inheritance, try to focus on the benefits of delayed gratification. My guess is you’ll still want fun money a decade or two from now. And you could have a lot more of it thanks to your wife’s decisions.
Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].
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robin@thepennyhoarder.com (Robin Hartill, CFP®)
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I want to retire next year, but I have $25,000 in credit card debt and a major monthly mortgage payment — I also live with my three kids and ex
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I’ll be 57 next month and am divorced with three kids living with me. One is 28, she’s working, another is 21 and a senior in college (with a full scholarship) and the youngest is 15 (a sophomore in high school with a full scholarship).
I plan to retire at the end of next year with $25,000 in credit card debt and 15 more years to pay my mortgage. The credit cards have 0% interest. I have a good medical benefit when I retire and it will cover my two sons under 26 years old. My monthly expenses are $2,000, including life insurance, utilities, and a car payment.
My mortgage is around $4,000 monthly impounded. The interest rate is 2% until January 2022, then 3% until January 2023 and the remaining loan is 4.5%. Is it worth it to refinance to a lower rate? I also plan to just pay the principal and pay interest in December and April. I have two credit cards: one that totals $20,000, where the 0% promo ends in April 2021, and another with $4,500 where the 0% interest promo ends this December.
I work for the state and have a pension and 401(k) and 457 investments that total $110,000. I also have one month’s worth of expenses in an emergency fund. I can only apply for a loan to the retirement accounts while employed.
I would like to ask if retiring will be a good idea. If so, is it appropriate to take a loan with my investment to pay off the credit card debt before retiring? Based on our benefit, I don’t have to repay the debt (to the 401(k)) after my retirement unless I win the lottery or something. There won’t be a penalty. My annual gross income is $96,000.
I’m a cohabitant with my ex on the house but get no contribution from him at all. I am working with my lawyer to see if I have the right to kick him out of the house.
Please help.
Thank you.
CDT
Dear CDT,
You have a lot to juggle, so the fact that you’re reaching out to someone for some financial guidance should be deemed an accomplishment all its own!
The truth is, you may want to hold off on retiring if you can. Having $110,000 in retirement accounts is great, and you don’t want to have to start dwindling that down while also trying to manage a way to effectively pay down credit card debt and a mortgage. Should an emergency arise, taking a big chunk out of that nest egg could end up hurting you significantly in the long run.
“I think she needs to take a hard look at her income and expenses,” said Tammy Wener, a financial adviser and co-founder of RW Financial Planning. “When it comes to retirement, so many things are out of your control, like inflation and investment return. The one thing you do have control over is expenses.” Furthermore, your pension may be enough to maintain your lifestyle — though advisers wondered what exactly you would be getting from that pension every month — but you would still be better off with a larger nest egg to fall back on.
Say you retire next year after all, but you still have credit card debt and hefty bills to pay. Any retirement income you have with and outside of your current funds may not be sufficient for your current living expenses, and if in a few years you realize this, you could end up back in the workforce — though it may be hard to get the same or a similar job you already have.
Let’s look at your 401(k) and 457 plans for a moment. You said you could take a loan and based on your benefit you don’t need to pay it back, but you should be extremely cautious about this. With 401(k) loans, employees may be required to repay that loan if they’re separated from their employers, so this is a stipulation you should absolutely verify. If there was any misunderstanding as to how a loan is treated, that remaining loan would be treated as taxable income when you left your job, Wener said.
Financial advisers usually caution investors not to take loans and withdrawals from retirement accounts if they can avoid it, and in your case, this may be especially true as you plan to retire in the next year. When you take a loan, you may be paying yourself and your account back, but your balance is reduced by the amount of the loan, which means you could lose out on investment returns. In the midst of this pandemic, many of the Americans who took a loan or withdrawal regret it now, a recent survey found. “I would not recommend ‘swapping debt’ by taking a loan from her investments,” said Hank Fox, a financial planner. “Instead, she should pay whatever amount is due each month to avoid the finance charges and continue to pay-down the balances.”
Don’t miss: 5 ways to find free financial advice
Also, consider what would happen if you continued to work: you’d still be able to contribute to a retirement account, boost your savings and, if applicable, reap the rewards with an employer match. You’d also narrow the amount of time you have between retirement and when you can claim Social Security benefits, Fox said.
Outside of the retirement accounts, you should try to build a “sizable” emergency fund, Wener said. Financial advisers typically suggest three to six months’ worth of living expenses, though you might want to strive for closer to six to offset any undesirable scenarios.
I’m not sure what the motivation was to retire next year, but if you can delay it, this may be the best solution. “The first thing I would recommend is that she reconsider retiring next year,” Fox said. “Since she will be 57 in November and assuming she is in good health, she should expect to be in retirement for 30 years or more.”
If postponing retirement is not an option, and it isn’t always, he suggests reducing or eliminating your mortgage, since it’s your largest expense by far. You could refinance, Wener said. Interest rates are very low these days, and while you may end up paying a little more every month for the next two years compared with that 2% rate you currently have, you’d end up paying the same and then less from February 2022 and on.
As for your credit cards, having a 0% interest rate is such a huge help in paying off debts faster, so you should try to extend that benefit, either by calling and asking about your options with your current credit card company or looking at alternative 0% interest cards.
A financial adviser — specifically, a Certified Financial Planner — could really help you crunch the numbers and find meaningful ways to make the most of the money you have now and will be getting in retirement, said Vince Clanton, principal and investment adviser representative at Chancellor Wealth Management.
An adviser can gather information on your current earnings and expenses, retirement savings, potential Social Security benefits and pension and create a financial plan to help you navigate retirement. “Voluntary retirement, and particularly early retirement, are very big decisions,” Clanton said. “It’s extremely important to know and understand all of the variables.”
Letters are edited for clarity.
Have a question about your own retirement savings? Email us at HelpMeRetire@marketwatch.com
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Weekend reads: The Federal Reserve gets a lot of flak for inflation, but it has actually hit its target recently
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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
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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.
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.
Time for a refreshing COLA if you are on Social Security
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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
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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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JPMorgan profit falls but beats estimates while Wells Fargo misses
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JPMorgan Chase & Co. shares rose Friday after the megabank beat analyst targets for third-quarter profit and revenue and said it would top forecasts for its net interest in come in the coming quarter.
In a busy day for bank earnings, Wells Fargo & Co.
WFC,
+4.62%
fell short of earnings target but its stock rose in premarket trades as it beat revenue estimates.Morgan Stanley
MS,
+3.55%
shares fell after it missed Wall Street’s targets for earnings and revenue.Citigroup Inc.
C,
+5.17%
shares rose after beating its profit mark, although revenue fell 1% after breaking out the impact of divestitures.Overall, banks benefited from higher interest rates and strong trading volumes, but investment banking deal activity fell sharply. Banks also channeled more capital into reserves and away from their collective bottom lines to prepare for a potential economic downturn.
As the largest bank in the U.S. and a bellwether for the sector, JPMorgan Chase
JPM,
+5.56%
turned in a “solid performance” in the latest quarter, in the words of Chief Executive Jamie Dimon.The bank said it expects to meet its capital requirements under the international Basel III banking guidelines and resume stock buybacks early in 2023.
“In the U.S., consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy,” Dimon said. “However, there are significant headwinds immediately in front of us – stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine, which is increasing all geopolitical risks, and the fragile state of oil supply and prices.”
Dimon said the bank remains “prepared for bad outcomes” so it can continue to operate even in the most challenging times.
Dimon’s prepared statement comes a day after the oft-quoted CEO said the U.S. consumer sector remains strong currently, but inflation will start weighing on people by 2023.
Also Read: JPMorgan CEO Dimon says inflation hasn’t dampened consumer spending yet but give it time
JPMorgan Chase’s stock rose 2.4% ahead of Friday’s open after it said its third-quarter net income fell 16.7% to $9.74 billion, or $3.12 a share, from $11.69 billion, or $3.74 a share, in the year-ago quarter.
Third-quarter revenue at the megabank rose to $32.72 billion from $29.65 billion in the year-ago quarter.
Wall Street analysts expected JPMorgan Chase to earn $2.90 a share on revenue of $32.12 billion, according to estimated compiled by FactSet. T
The bank said a net credit reserve build of $808 million ate into its net income for the latest quarter, compared with a net reserve release of $2.1 billion in the prior year.
Net interest income climbed 34% to $17.6 billion and net interest income excluding its Markets unit rose 51% to $16.9 billion on higher interest rates.
JPMorgan Chase’s total assets under management fell 13% to $2.6 trillion in the face of losses in the equities market and difficult conditions in the bond market.
Looking ahead, JPMorgan Chase said it expects fourth-quarter net interest income of about $19 billion, ahead of the $18.2 billion analyst estimate.
Octavio Marenzi, CEO of management consultant company Opimas said the bank’s results were “surprisingly solid” and if you strip away its payments for loan reserves, its profit is basically unchanged.
“Individual lines of business, such as investment banking and mortgages did predictably badly, but this was more than compensated for by strength in other areas of lending and in trading,” Marenzi said.
Shares of JPMorgan Chase have lost 30.9% in 2022 compared with a 17.3% drop by the Dow Jones Industrial Average
DJIA,
+2.83%
and a 23.0% loss by the S&P 500
SPX,
+2.60% .Wells Fargo misses profit target but share rise
Wells Fargo & Co. shares advanced 2% in Friday’s premarket after the bank posted net income of $3.528 billion, or 85 cents a share, for the quarter to end September, down from $5.122 billion, or $1.17 a share, in the year-earlier quarter.
The megabank fell short of the earnings-per-share target of $1.09 a share.
Wells Fargo’s revenue rose to $19.505 billion from $18.834 billion a year ago, ahead of the $18.775 billion FactSet consensus.
Chief Executive Charlie Scharf said performance was “significantly impacted” by $2 billion, or 45 cents a share, in operating losses “related to litigation, customer remediation, and regulatory matters primarily related to a variety of historical matters.”
However, the bank is seeing historically low delinquencies and high payment rates, and the “timing of deterioration in those measures due to high inflation remains unclear. “
The bank set aside $784 million in provisions for loan losses, after reducing them by $1.395 billion a year ago.
Net interest income rose 36%, while noninterest income fell 25%, as mortgage banking income declined.
Citi analyst Keith Horowitz said Wells Fargo turned in a “good” quarter overall, although larger-than-expected one-time charges and a reserve build reduced profits. But Wells Fargo also raised its outlook for net interest income “and we still see upside to 2023 consensus,” Horowitz said.
Shares of Wells Fargo have declined 12% in the year to date.
Morgan Stanley shares fall on results
Morgan Stanley fell 2.6% in premarket trades after the investment bank missed Wall Street’s targets for earnings and revenue amid a drop in deal activity.
Morgan Stanley said its third-quarter net income fell to $2.49 billion, or $1.47 per share, from net income of $3.7 billion, or $1.98 per share in the year-ago quarter.
Third-quarter revenue dropped to $12.99 billion from $14.75 billion.
Wall Street analysts were looking for earnings of $1.52 a share and revenue of $13.29 billion, according to FactSet data.
“Firm performance was resilient and balanced in an uncertain and difficult environment, delivering a 15% return on tangible common equity,” said CEO James Gorman. “Wealth Management added an additional $65 billion in net new assets and produced a pre-tax margin of 28%, excluding integration-related expenses, demonstrating scale and stability despite declining asset values.”
Morgan Stanley shares have lost 19.2% in 2022.
Citi beats targets but shares lose ground
Citigroup shares fell 1.3% in premarket trades Friday after the bank posted stronger-than-expected profit, but revenue fell 1% after breaking out divestiture-related impacts, as growth in net interest income was more than offset by lower non-interest revenue.
Citi said its third-quarter net income dropped to $3.5 billion, or $1.63 per share, from $4.6 billion, or $2.15 a share, in the year-ago quarter.
Excluding divestiture-related impacts, earnings were $1.50 a share.
Total revenue increased to $18.5 billion from $17.4 billion.
Analysts were looking for earnings of $1.42 a share and revenue of $18.26 billion for Citigroup, according to a FactSet survey.
Citi said it continues to shrink its operations in Russia, and expects to end nearly all of the institutional banking services offered in the country next quarter. “To be clear, our intention is to wind down our presence in this country,” Chief Executive Jane Fraser said.
Shares of Citigroup have dropped 28.9% in 2022.
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U.S. stocks surrender early gains to close lower after Fed minutes hint at more aggressive hikes
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U.S. stocks finished lower on Wednesday after the release of minutes from the Federal Reserve’s September policy meeting, wherein policy makers noted that inflation remained “unacceptably high.” The S&P 500
SPX,
-0.33%
closed 11.81 points, or 0.3%, lower at 3,577.03. The Dow Jones Industrial Average
DJIA,
-0.10%
finished off 28.34 points, or 0.1%, at 29,210.85. The Nasdaq Composite
COMP,
-0.09%
closed 9.09 points, or 0.1%, lower at 10,417.10. All three major indexes finished lower for a sixth straight day.[ad_2]
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Josh Brown on the next five years in markets: ‘You actually can earn yield.’
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As MarketWatch turns 25, we wanted to know what top investing minds think we will be covering for the next five years. So we turned to the Reformed Broker and things got a little crazy.
For years, Josh Brown has been one of MarketWatch’s favorite market commentators and personalities. We knew him before he was a big shot CNBC regular and CEO of Ritholtz Wealth Management. He blogged a lot on his web site, The Reformed Broker, that he started in 2008, and found a devoted audience that wanted to hear his blunt and straightforward views on Wall Street, books he was reading, even his music preferences.
By early 2020, MarketWatch was writing about Brown’s “budding media empire,” which included 1 million twitter followers, blogs that generated 1.7 million page views monthly, and a YouTube channel with more than 20,000 subscribers.
As MarketWatch turns 25, we asked Brown what he thought we would be covering in the next five years. Here are his lightly edited comments:
What do you think you’ll be reading in MarketWatch in the next five years?
Brown: I think on MarketWatch in the next five years I will be reading a lot about inflation and then eventually disinflation and then maybe deflation. Hopefully not. But I do think probably a lot of what will be driving trends in the market will have to do with interest rates and macroeconomic concerns. It’s always been that way, but it seems even more extreme now.
What opportunities do you see today that you think might be more clear in the next five years?
Brown: It’s pretty obvious that large corporations and governments will mostly address the labor shortage by putting in software and robots. So I think anything that has to do with automation is a pretty safe bet over the next 5 to 10 years. That’s probably how we’re going to in part solve inflation. We’re going to drive the cost of doing business down via automation. It’s not part of the future. It’s the present. It’s already happening.
What do you fear that you’ll be reading about in MarketWatch in the next five years?
Brown: I really hope that no one’s reading about any personal scandals of mine in the next five years at MarketWatch. In fact, I think about it every day.
What opportunities do you see today in the financial markets that might be more clear in five years?
The 40% of a classical 60/40 portfolio now has a bigger role other than just stabilization. Like you actually can earn yield. It’s not yet a positive real yield because inflation is so high, but it’s nice for it not to be zero. So one really great idea is to go back to basics. And when you’re constructing a portfolio, don’t just think about return on investment, but think about return of investment. Being able to buy high quality muni bonds and treasuries right now, at the current rates, I think it will look like a gift sometime in the near future.
Last question. What do you fear that you’ll be reading about financial markets and investors in the next five years?
Brown: I’m not a fearful person. We will go through good times. This is the worst year since 1970 for an investor with any kind of portfolio. You have a full-scale collapse in fixed income right at the moment when you needed it because stocks have been collapsing and the high of the year was January 1st. Like, this is as bad as it gets. So we’ll make it. We’ll do this again in 2023. There will be a whole other list of things that could go wrong. But overall, I don’t invest as though I’ll be the last investor. Someone will come later. They’ll take risk, too. It’s just an ebb and flow of uncertainty. Right now. It feels like there’s a lot of uncertainty with good reason. Those aren’t the times to be most nervous. The times to be most nervous is when everyone is completely certain of what they’re doing. So we’re not there now. And that’s the good news.
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Micro-Investing: How You Can Start Investing With as Little as $5
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Myth: You need lots of money to start investing.
Micro-investing apps are giving everyday people access to the stock market for as little as $5.
Micro-investing allows you to start small — really small. Apps like Acorns and Stash work by transferring small sums of money from your bank account to a diversified portfolio.
Research shows that these tiny money moves can really add up.
According to a recent consumer study by Cornerstone Advisors, saving and investing apps like Acorns, Digit and Qapital helped consumers save an average of $600 a year above their standard level of savings — and one in five users saved more than $1,000.
Is a micro-investment app right for you? The answer depends on your financial goals and income.
What Is Micro-Investing?
Micro-investing allows you to automatically allocate small amounts of money into a portfolio of stocks and bonds — even if you know nothing about investing.
This fintech term applies to a handful of mobile-based platforms that make investing easy and painless.
Here are a few common features these micro-investing apps share:
- The ability to set up recurring transfers from your bank account to your investment account.
- The option to round up purchases and sweep the spare change into your investment account.
- Robo-advisors that select a portfolio of diversified investments tailored to your goals and risk tolerance.
- Fractional shares of stocks, which allows you to start investing with $5 or less.
- A flat monthly fee for services or a fee equal to a percentage of your account balance.
- Educational resources that teach you about personal finance.
Micro-investing can be a good option if you’re tight on extra cash or you’re new to investing and not sure where to start.
You can customize how much money you invest and how often — putting you in the driver’s seat. These apps also remove some of the barriers of traditional brokerage accounts, such as account minimums and trading fees.
“Micro-investing apps lower the cost of entry, which opens up investment opportunities to a wider audience,” said Summer Red, a financial advisor and education manager at the Association for Financial Counseling & Planning Education. “Investing is complex, and the best way to learn about it is to actually invest.”
You can use a micro-investing app like training wheels to support you as you begin your investing journey.
Or you can use it as a second emergency fund or as an auxiliary account to save for a mid-term goal, like buying a home.
Still, most financial advisors agree these apps should be just one small (some might even say micro) piece of your long-term financial picture. They aren’t intended to replace your emergency fund or make you a millionaire.
You’re going to need to do more than round-up your Uber Eats orders to save enough money for retirement.
How Micro-Investing Platforms Work
Here’s what to expect once you dive into micro-investing.
Where Is My Money Invested?
After you download a micro-investing app and create an account, you’ll need to link a debit card or bank account.
You’ll also be prompted to complete a survey designed to determine your risk tolerance and financial goals.
From there, many apps select a pre-made portfolio where your money gets invested. You can usually choose a different portfolio if you disagree with the algorithm but you may not be able to select individual stocks or other assets.
In this way, micro-investing apps also work like robo-advisors or online brokers that use advanced software to invest money and manage your portfolio.
Portfolios are most often comprised of exchange-traded funds, or ETFs. ETFs bundle many different investments into one fund, giving you exposure to hundreds of stocks (and/or bonds) with a single purchase.
Exchange-traded funds provide instant diversification, and are considered less risky than investing in individual stocks. They’re similar to mutual funds in that respect, but at a much lower cost.
From there, you can customize how much money you want to invest and how often.
How Does Rounding Up Work in a Micro-Investing App?
Several micro-investing apps work by rounding your purchases to the nearest dollar before tucking the difference into your investment account.
So, if you spend $10.35 on Amazon, you’ll actually get charged $11 and the app will set aside 65 cents.
Once your round-ups total a certain amount (usually $5 or more), the app transfers the spare change to your personal investment account.
Round-ups are an attractive option for new investors because they’re simple, easy and automatic.
According to Acorns, users invest about $30 a month, or $360 a year, with the app’s Round-Up feature. If you’re new to investing, $360 in the stock market is a step in the right direction.
Recurring Transfers, Retirement Accounts and Other Features
Every app also lets you set up recurring transfers from your checking or savings account on a daily, weekly or monthly basis. You can enable this automated investing feature in addition to spare change round-ups so your money grows even faster.
For example, you can set your account to automatically withdraw $20 a week from your bank.
Investing a fixed amount of money each week or month plays into a key investing strategy known as dollar cost averaging.
By making regular, fixed-amount investments, you average out the roller coaster highs and lows of the stock market. You end up buying more when the price is low and less when the price is high.
Some investment apps also give users the option to put money into sustainable portfolios that align with your social or environmental views. You can make some green while supporting green companies, a nice plus for many Millennial and Gen Z investors.
Finally, these apps offer other services, such as access to a financial advisor or a tax-advantaged retirement account — but you’ll pay more for these features.
Most apps automatically invest you in a taxable brokerage account, but for a couple bucks more a month, you can opt for a Roth or traditional individual retirement account (IRA).
Retirement accounts come with special perks from the federal government, like a deduction on your yearly tax bill. But it’s important to learn about IRS early withdrawal penalties and other restrictions before opening an IRA.
Pros- Easy to use
- Safe
- Diversification
- Low minimum deposits
- Educational tools
Cons- Miss out on retirement plan tax perks
- Account fees
- Limited investment choices
- Not enough to reach retirement goals
Pros and Cons of Micro-Investing
If you’re not investing already, the first step is always the hardest. Micro-investing apps make the process less intimidating and stressful for beginners.
“They’ve changed the format and experience so it’s much easier to get started than it was with old-fashioned investment companies,” said Justin Chidester, a certified financial planner and owner of the fee-only firm Wealth Mode Financial Planning in Logan, Utah.
Realistically, these apps can help you set aside a few hundred dollars a year — no small feat if you’ve been living paycheck to paycheck.
But over time, Chidester and other experts say you should adopt a more robust investing strategy by stepping up your 401(k) contributions at work and speaking with a financial advisor about retirement planning.
Pros of Micro-Investing
Easy to Use
You do everything else on your phone — why not start investing? Micro-investing apps feature easy-to-use interfaces that make it super simple to round up your purchases and manage your account.
Safe
Apps like Acorns use multiple security features, including encryption, secure servers and alerts about unusual activity to keep your money safe. Stick with well-known apps from companies registered with the Financial Industry Regulatory Authority (FINRA) or the U.S. Securities and Exchange Commission.
Diversification
Buying individual stocks as a newbie can be risky. Diversification and asset allocation are the easiest ways to mitigate risk, and micro-investors do a great job at this by spreading your money across broad-based ETFs.
Low Minimum Deposits
ETFs can cost hundreds of dollars per share. But these apps get you started with an initial investment of $5 or less. How? By purchasing fractional shares of ETFs, which isn’t possible at many traditional brokerage firms. This gets you invested quickly — even if you can’t afford to purchase an entire share at first.
Educational Tools
These apps provide lots of educational resources and financial and investment advice for beginning investors, from definitions of financial lingo to daily market commentary. They hammer home the importance of investing for the long haul. If you’re trying to boost your financial literacy know-how, definitely read up and take advantage of these free resources.
Micro-investing apps are a great place to start, but most financial advisors agree that you shouldn’t stop there.
“Something that invests a few dollars a month for you isn’t going to make you rich,” Chidester told The Penny Hoarder. “You’re never going to be able to save for retirement unless you intentionally invest a higher and consistent amount of money.”
Cons of Micro-Investing Apps
Miss Out on Retirement Plan Tax Perks — or Pay More
Since most micro-investing apps offer taxable investment accounts, you won’t get the sweet tax perks of retirement savings plans like a 401(k). While apps like Acorns and Stash offer the choice to open an IRA, you’ll pay more, usually $3 a month.
Paying $36 a year to access an IRA is a pretty lousy deal. More robust robo-advisors like Betterment offer IRA access for a yearly charge of 0.25%, or just $2.50 per every $1,000 invested.
Account Fees
Account fees for these apps vary widely. Some charge a flat amount for basic service, like $3 a month, while others charge a small percentage of your portfolio balance.
A micro-investing app may feature free trades until your account reaches a certain amount, such as $5,000. Most will offer additional services, like access to a checking account, for a higher monthly fee of $5 or $9.
This may not seem like much, but it adds up. For example, a monthly $3 charge equals 36% in fees each year if you only have $100 in your account. Meanwhile, most brokerage services, like Robinhood, offer free trades and no monthly fees.
Limited Investment Choices
As you learn more about investing, you might want to DIY your portfolio or add specific assets. Unfortunately, micro-apps don’t provide much wiggle room as your investment strategy evolves.
Some apps won’t let you invest in cryptocurrency, and you may not be able to pick individual stocks. Many apps also lack access to professional investment advisory services.
Not Enough to Reach Retirement Goals
Micro-investments often lead to micro results. Meanwhile, retirement is really expensive: According to Fidelity Investments, you should aim to retire with about 10 times your current income banked.
So, if you make $50,000 a year, you’ll need at least $500,000 in retirement savings by the time you stop working. You can round up your Starbucks purchases for 30 years — and still fall miserably short of your retirement nest egg goal.
How to Start Micro-Investing
Thanks to technology, entering the investing world is as easy as doing some research and downloading an app.
But here’s a quick rundown of a few of the best micro-investing apps on the market.
Acorns
Acorns lets you invest your spare change through a linked debit card and/or make recurring deposits to your account. This investing app works as a robo-advisor by creating a portfolio tailored to your goals and risk tolerance. Accounts cost $3 to $5 a month.
Stash
Stash offers many of the same perks as Acorns, including round-ups, fractional shares, recurring deposits and the option to open an IRA. However, this investing app also allows a user to tweak their investment portfolio, with more than 3,000 ETFs and individual stocks available. Monthly fees range from $3 to $9.
Public
Public lets you buy fractional shares of companies, and offers “themes” of stocks, such as health care and tech companies. This investing app also incorporates a social media-like feed, letting users keep track of other users’ stock portfolios. Public is a free app with no membership or commission fees.
Frequently Asked Questions (FAQs)
Micro-investing works by saving small amounts of money and consistently investing it into a portfolio of ETFs or fractional shares of individual stocks.
Is Micro-Investing a Good Idea?
It depends. Micro-investing can be a fit for new investors who want an easy, relatively hands-off approach to growing their cash. It’s not a great option for more experienced investors seeking customization or crafting a long-term retirement strategy.
And investment advice on an app isn’t the same as investment advice from a financial professional.
What Is a Micro-Investing Platform?
Micro-investing platforms are apps that let users contribute small sums of money — as little as a few dollars — to a brokerage account. By connecting a debit card, a micro-investing platform can round up your purchases or make automatic transfers on your behalf.
Rachel Christian is a senior writer for The Penny Hoarder.
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rachel.christian@thepennyhoarder.com (Rachel Christian, CEPF®)
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U.S. stocks edge up despite higher-than-expected inflation data
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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
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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
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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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The Dow Jones Industrial Average
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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.”
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.[ad_2]
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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.
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%.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.[ad_2]
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WSJ News Exclusive | Peloton Co-Founder John Foley Faced Repeated Margin Calls From Goldman Sachs as Stock Slumped
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John Foley, the co-founder and former chief executive of Peloton Interactive faced repeated margin calls on money he borrowed against his Peloton holdings before he left the fitness company’s board last month, according to people familiar with the situation.
As Peloton’s shares slumped over the past year, Goldman Sachs Group asked Mr. Foley several times to provide fresh funds or additional collateral for personal loans the bank had extended to him, the people said. The company’s share price has fallen nearly 95% from its $160 peak in December 2020.
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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[ad_2]
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Meet the 10 biggest megadonors for the 2022 midterm elections
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With four weeks until Election Day, congressional candidates are on track to break midterm fundraising records, having raised nearly $2.5 billion so far this cycle. That’s already 70% more than what was raised during the 2014 cycle and just $200 million shy of the total raised during the full 2018 cycle.
This cycle has also seen record-shattering outside spending, topping $1 billion through the beginning of October, according to an OpenSecrets estimate.
The increase in spending and fundraising is due in large part to the involvement of millionaire and billionaire megadonors who have sought to influence the outcome of an election in which both chambers of Congress are in play.
“When megadonors pump millions of dollars into super PACs, they get to help call the shots,” said Michael Beckel, research director at Issue One, a nonpartisan political reform organization. “Massive spending from a megadonor can influence what issues are talked about on the campaign trail and in Congress.”
Super PACs are independent political action committees that can raise unlimited sums of money but are not allowed to coordinate with a candidate or campaign. Due to contribution limits, such as those restricting individuals’ candidate contributions to $2,900 per election per candidate, most megadonor spending goes to super PACs.
More context: These are the basics of campaign finance in 2020 — in two handy charts
A MarketWatch analysis of Federal Election Commission data through the end of September shows that these 10 business moguls and philanthropists are the biggest federal-level donors this cycle.
Read: These 3 races could determine whether Democrats or Republicans control the Senate in 2023
And see: If this seat flips red, Republicans will have ‘probably won a relatively comfortable House majority’
Top federal-level megadonors this cycle
Rank Contributor Total Contributions For Republicans For Democrats Nonpartisan/Bipartisan 1 George Soros $128,782,000 $0 $128,782,000 $0 2 Ken Griffin $50,955,800 $50,955,800 $0 $0 3 Richard Uihlein $49,117,000 $49,117,000 $0 $0 4 Sam Bankman-Fried $39,931,000 $201,000 $37,725,000 $2,005,000 5 Jeff Yass $32,754,000 $32,754,000 $0 $0 6 Peter Thiel $30,189,000 $30,189,000 $0 $0 7 Fred Eychaner $22,343,000 $0 $22,343,000 $0 8 Stephen Schwarzman $21,870,000 $21,865,000 $0 $5,000 9 Larry Ellison $21,003,000 $21,003,000 $0 $0 10 Ryan Salame $18,932,000 $17,432,000 $0 $1,500,000 Totals: $415,877,000 $223,517,000 $188,850,000 $3,510,000 Source: MarketWatch analysis of FEC data as of Sept. 30, 2022
Note: Partisan breakdown includes non-party affiliated PACs with over 95% of their spending benefitting one party, data has been rounded to the nearest thousandBig spending by itself doesn’t automatically mean winning. There have been notable instances of the financially strongest candidates losing (such as crypto-backed House candidate Carrick Flynn earlier this year and billionaire Michael Bloomberg’s self-financed presidential bid) — but money can certainly help put a candidate on the right track.
“Money alone doesn’t guarantee electoral success, but every candidate prefers to be the one with more money to spend,” Beckel said. He added: “Outside spending on behalf of a candidate isn’t a silver bullet that’s going to guarantee electoral success. But it goes a long way to boosting somebody’s name recognition, and to presenting them as a viable candidate — somebody who has the resources to run a competitive campaign.”
Information about the spending by the top 10 donors this cycle has been compiled from MarketWatch’s analysis of FEC data and filings, super PAC websites and previously reported comments. Read on to find out who are the top 10 biggest donors this cycle.
10. Ryan Salame — $19 million
Ryan Salame, the co-CEO of FTX Digital Markets, a subsidiary of cryptocurrency exchange FTX, founded a hybrid PAC earlier this year called American Dream Federal Action. The vast majority ($15 million) of the $19 million Salame has spent this cycle has gone into bankrolling the PAC, which has spent $2.4 million in independent expenditures supporting Illinois Republican Rep. Rodney Davis, $2 million supporting Republican Senate candidate Katie Britt from Alabama, and $1.2 million each supporting Arkansas GOP Sen. John Boozman and Brad Finstad, a GOP congressional candidate in Minnesota.
On its website, the PAC describes itself as “organization dedicated to electing forward-looking candidates — those who want to protect America’s long term economic and national security by advancing smart policy decisions now.” A representative for Salame didn’t respond to a request for comment.
9. Lawrence Ellison — $21 million
The co-founder of Oracle
ORCL,
+0.26%
has similarly bankrolled a PAC this election cycle — giving a total $20 million to Opportunity Matters Fund Inc. The super PAC has largely held onto its funds so far, recent FEC records show, having $17 million cash on hand as of the end of August. Of the independent expenditures it has made this cycle, it spent the most on Georgia Republican Senate candidate Herschel Walker ($1.3 million), Wisconsin Republican Sen. Ron Johnson ($1.3 million) and North Carolina Senate candidate and current Republican Rep. Ted Budd ($1.1 million). A representative for Ellison didn’t respond to a request for comment.8. Stephen Schwarzman — $22 million
Billionaire Stephen Schwarzman, the CEO of private-equity giant Blackstone
BX,
-2.41% ,
is the eighth biggest donor at the federal level this cycle. In March, Schwarzman gave $10 million to both the Senate Leadership Fund and Congressional Leadership Fund, super PACs aimed at obtaining a Republican majority in the Senate and House, respectively. A representative for Schwarzman didn’t respond to a request for comment.7. Fred Eychaner — $22 million
Fred Eychaner has also contributed $22 million so far this cycle, but unlike most of the spending on this list, his has been directed toward Democratic causes. The chairman of Chicago-based Newsweb Corporation has given $9 million to the House Majority PAC and $8 million to the Senate Majority PAC, as well as just under $1.5 million to the Democratic National Committee and several hundred thousands to the Democratic Congressional Campaign Committee and Democratic Senatorial Campaign Committee. A representative for Eychaner didn’t respond to a request for comment.
6. Peter Thiel — $30 million
Venture capitalist Peter Thiel was heavily involved in backing Ohio Republican J.D. Vance’s primary bid, giving $15 million in the spring to the Vance-aligned Protect Ohio Values PAC.
The massive primary investment was “historic” and record-setting, according to Beckel, who added that Thiel’s involvement in the Ohio Senate primary could mark “a new chapter of how mega donors are choosing to play in politics.”
“I think it’s become clear for a lot of megadonors that there are high stakes to a lot of primaries, and by spending in the primary, where there is typically lower turnout than in say, a statewide general election, they can get a lot of bang for their buck by investing in a primary election,” Beckel added.
Thiel has indicated that he doesn’t intend to put any more money toward Vance’s bid as he reportedly believes the Ohio candidate is on track to win, and instead will focus his funding on Arizona Republican Blake Masters’ bid to oust Democratic Sen. Mark Kelly in the final weeks leading up to the midterm election.
Thiel, known for his roles in PayPal
PYPL,
-1.69% ,
Palantir
PLTR,
-0.25%
and Facebook
META,
-3.92% ,
has also given a total $15 million to the Masters-aligned PAC, Saving Arizona, with his most recent contribution in July. Both Vance and Masters are venture capitalists, but Masters has worked with Thiel. He served as chief operating officer of Thiel Capital and president of the Thiel Foundation, and he co-authored a book on startups with Thiel in 2014. A representative for Thiel didn’t respond to a request for comment.5. Jeff Yass — $33 million
Options trader Jeff Yass, who founded trading firm Susquehanna International Group, has contributed about $33 million on a federal level this cycle. Yass has given $15 million to the School Freedom Fund, or the equivalent of 97% of the PAC’s total fundraising. The group focuses on the issue of school choice, and its website states that some bureaucrats “hindered the development and education of our youth through school closures, mask mandates, critical race theory, and more.”
Aside from the School Freedom Fund, Yass’ other biggest contributions are to the conservative Club for Action ($6.5 million), Kentucky Freedom ($5 million), Protect Freedom ($2 million) and Crypto Freedom ($1.9 million). A representative for Yass didn’t respond to a request for comment.
4. Sam Bankman-Fried — $40 million
Sam Bankman-Fried, the founder and CEO of FTX, is the main funder behind Protect Our Future PAC, giving it $27 million of the $28 million it raised this cycle.
The organization says on its website that it focuses on promoting Democratic candidates championing pandemic preparedness and prevention “so this is the last time in our lifetime, and our children’s lifetimes, that we will face the devastation that has gripped communities across the U.S. since 2020.”
The group spent more than $10 million supporting Democrat Carrick Flynn’s House bid in Oregon. Flynn lost his primary in May by 18 points despite his massive outside spending advantage. In addition to Flynn, the group has made over $1 million in independent expenditures each supporting Democratic congressional candidates Lucy McBath, a current representative from Georgia; Jasmine Crockett of Texas, Adam Hollier of Michigan, Valerie Foushee of North Carolina and Shontel Brown, a current representative from Ohio.
Most of the other $10 million Bankman-Fried spent this cycle has gone to the House Majority PAC ($6 million) and the crypto PAC GMI ($2 million).
While the vast majority of his spending has supported Democratic candidates and causes, Bankman-Fried does not classify himself as an exclusively Democratic donor — for instance he gave $105,000 to the Alabama Conservatives Fund in June and $45,000 to the NRCC in July.
He told Politico in August that he is “legitimately worried about doing things that will make people view me as partisan when it’s not how I feel … because I think it both misses what I’m trying to do and makes it harder for me to act constructively.” A representative for the FTX boss didn’t respond to a request for comment.
3. Richard Uihlein — $49 million
Richard Uihlein is the founder of the shipping and business supply company Uline, and is a longtime conservative donor. This cycle has seen nearly $50 million in political spending by him, with just over half of it going to Club for Growth Action. Uihlein has also given about $14 million to Restoration PAC, an organization that says it is “dedicated to strengthening the foundations that made America the greatest nation in the world: God, family, education, and community.”
Uihlein’s next largest contributions are to the conservative Team PAC ($2.5 million) and the Arkansas Patriots Fund ($2.2 million), which earlier this year made ad buys favoring Republican Sen. John Boozman’s primary opponent. A representative for Uihlein didn’t respond to a request for comment.
2. Ken Griffin — $51 million
With $51 million in federal-level political spending, Ken Griffin, CEO of hedge fund Citadel, is the second most prolific donor this cycle.
The biggest beneficiaries are the Republican-aligned Congressional Leadership Fund with $18.5 million in contributions, the Senate Leadership Fund with $10 million and Honor Pennsylvania, a super PAC that backed Republican Dave McCormick’s Senate bid. McCormick lost in the primary to Mehmet Oz by less than a thousand votes.
While Griffin spent about $64 million during the last cycle, his $51 million figure this year marks by far the most he has spent during a midterm cycle. During the 2018 cycle, his contributions totaled less than $8 million.
A spokesperson for Griffin told MarketWatch that Griffin “supports leaders who are committed to protecting the American Dream and pursuing policies that will create a better future for the United States.”
“The right policies will focus on creating rewarding jobs, prioritizing public safety, and investing in a strong national defense,” his spokesperson said. “Preserving the American Dream will require that every child is well educated, can access great healthcare, and has the opportunity to succeed.”
1. George Soros — $129 million
Not one donor comes close to matching the sum that billionaire philanthropist George Soros has contributed this cycle: $129 million. However, much of that money hasn’t actually been put to work this cycle.
The majority of those on this list have focused their funding on Republican causes, but Soros’ money has gone to Democratic groups — specifically Democracy PAC II, whose $125 million in contributions comprises 99% of its fundraising. The super PAC spent more than $80 million on Democratic groups and candidates during the 2020 election.
A representative for Soros pointed MarketWatch to a Politico article from January, in which Soros said the $125 million is aimed at supporting pro-democracy “causes and candidates, regardless of political party” who are invested in “strengthening the infrastructure of American democracy: voting rights and civic participation, civil rights and liberties, and the rule of law” and called his contribution a “long-term investment” that will support political work beyond this year.
So far this cycle, Democracy PAC has spent very little and holds $113 million in available cash. Contributions the PAC has made this cycle include $5 million to the Senate Majority PAC, $2.5 million to One Georgia and $1 million to both Care in Action and House Majority PAC.
[ad_2]
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The stock market is in trouble. That’s because the the bond market is ‘very close to a crash.’
[ad_1]
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.
[ad_2]
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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,
-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[ad_2]
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Elon Musk’s Private Messages with Billionaire Pals
[ad_1]
In Musk v. Twitter, a part of the business life of the richest man in the world is revealed.
Private messages exchanged with his inner circle immerse us into his process when he conceives an idea.
The messages were released by the Delaware Chancery Court as part of the proceedings between the two parties.
The revelation of these private messages is undoubtedly one of the reasons which led the billionaire to put back on the table his offer to acquire the platform for $44 billion. And to demand that Twitter (TWTR) drop its legal action in exchange.
You can read them here.
Here are messages Musk exchanged with billionaire friends about Twitter.
Jack Dorsey, Twitter co-Founder
Jack Dorsey, is CEO of fintech Block, formerly Square. He co-founded Twitter and was still CEO until 2020. He’s on Musk’s phone as JackJack.
He wrote on March 26:
Dorsey: “yes, a new platform is needed. It can’t be a company. This is why I left.
Musk: Ok
What should it look like?
Dorsey: I believe it must be an open source protocol, funded by a foundation of sorts that doesn’t own the protocol, only advances it. A bit like what Signal has done. It can’t have an advertising model. Otherwise you have surface area that governments and advertisers will try to influence and control. If it has a centralized entity behind it, it will be attacked. This isn’t complicated work, it just has to be done right so it’s resilient to what has happened to twitter.
Musk: Super interesting idea
Dorsey: I’m off the Twitter board mid May and then completely out of company. I intend to do this work and fix our mistakes. Twitter started as a protocol. It should have never been a company. That was the original sin.
Musk: I’d like to help if I am able to.
Dorsey: I wanted to talk with you about it after I was all clear, because you care so much, get it’s importance, and could def help in immeasurable ways. Back when we had the activist come in, I tried my hardest to get you on our board, and our board said no. That’s about the time I decided I needed to work to leave, as hard as it was for me.
Musk: Do you have a moment to talk?
Dorsey: Bout to head out to dinner but can for a minute.
I think the main reason is the board is just super risk averse and saw adding you as more risk, which I thought was completely stupid and backwards, but I only had one vote, and 3% of company, and no dual class shares. Hard set up. We can discuss more.
Musk: Let’s definitely discuss more
Musk and Dorsey had several more exchanges.
Larry Ellison, Oracle co-Founder
Ellison texted Musk on March 27.
Ellison: Elon, I’d like to chat with you in the next day or so … I do think we need another Twitter.
Musk: Want to talk now?
Ellison: Sure
On April 20, Musk writes to Ellison asking if he wants to help fund the operation.
Musk: Any interest in participating in the Twitter deal?
Ellison: Yes…of course.
Musk: Roughly what dollar size? Not holding you to anything, but the deal is oversubscribed, so I have to reduce or kick out some participants.
Ellison: A billion…or whatever you recommend
Musk: Whatever works for you. I’d recommend maybe $2B or more. This has very high potential and I’d rather have you than anyone else.
Ellison: I agree that it has huge potential…and it would be a lot of fun
Sam Bankman-Fried, Founder and CEO of Crypto Platform FTX.com
On April 1, SBF as he is nicknamed in the crypto community, sends a message to Musk.
SBF: Great to meet you Elon – Happy to chat about Twitter (or other things) whenever!
Musk: Hi
Maybe we can talk later today? I’m in Germany.
SBF: I’m on EST – could talk sometime between 7pm and 10pm Germany time today?
April 14 SBF writes again to Musk. That day, Tesla’s CEO announced a solicited $44 billion bid to acquire the platform.
SBF: Btw Elon – would love to talk about Twitter. Also a post on how blockchain + Twitter could work.
The two billionaires had been put in contact by Will MacAskill, Oxford philosophy professor. MacAskill talks about SBF to Musk on March 29 as a possible financial partner in a possible acquisition of Twitter.
MacAskill: Hey – I saw your poll on twitter about Twitter and free speech. I’m not sure if this is what’s on your mind, but my collaborator [crypto investor and FTX CEO] Sam Bankman-Fried has for a while been potentially interested in purchasing it and then making it better for the world. If you want to talk to him about a possible joint effort in that direction, his number is [redacted] and he’s on Signal.
Musk: Does he have huge amounts of money?
MacAskill, March 30: Depends on how you define “huge”! He’s worth $24B, and his early employees (with shared values) bump that to $30B. I asked about how much he could in principle contribute and he said ”~$1-3B would be easy `$3-8b I could do ~8-15b is maybe possible but would require financing.
If you were interested to discuss the idea and he said he’d be down to meet you in Austin.
Reid Hoffman, co-Founder and executive Chairman of LinkedIn
On April 27, two days after Twitter accepted Musk’s acquisition offer, Hoffman offered to put the billionaire in touch with Microsoft CEO Satya Nadella.
Hoffman: Great. I will put you in touch with Satya
Hoffman: Elon, Satya: as indicated, this connects the two of you by text and phone
Hoffman: It’s way beyond my resources. I presume you are not interested in venture $.
Musk: There is plenty of financial support but you’re a friend, so just letting you know you’d get priority. VC money is fine if you want.
Hoffman: Very cool! OK- If I were to put together $, what size could you make available?
Musk: Whatever you’d like. I will just cut back others.
Musk: I would need to know the approximate by next week
Hoffman: What would be the largest $ that would be ok? I consulted with our LPs, and I have strong demand. Would be fun !
Musk: $2B?
Hoffman: Great. Probably doable – let me see.
Musk: Can be less if easier. The round is oversubscribed, so I just have to tell other investors what their allocation is ideally by early next week.
Musk: Should I connect you with the Morgan Stanley team?
Hoffman: Yes please. Especially with the terms, etc. I know Michael Grimes, btw.
Musk: Please feel free to call him directly
Hoffman: OK. – I’ll do that. (Trying to simplify your massively busy life.)
Musk: The Morgan Stanley deal team is truly excellent and I don’t say such things lightly.
Hoffman: Indeed! I took LI public and the MSFT-LI deal with them!
[ad_2]
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Dow books 630-point drop after strong jobs data rattles investors, but stocks cement weekly gains
[ad_1]
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
[ad_2]
-
The Dow Jones Industrial Average
-
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[ad_2]
