Stock and Wall Market Recovery After a Big Gain in October, and Investors Are In for Another Long Downfall – The Case of Wall Street, Credit Suisse, and the Fed
October began with more treats than tricks for investors. The market rallied to begin the fourth quarter, despite growing worries about the financial health of European banking giant Credit Suisse and weak economic data.
The blue chip stock index rose 762 points, or 2.5%. That was its biggest gain since mid-July. The Nasdaq and S&P 500 gained 2.3% and 2.6%, respectively. Friday was the day that stocks ended September with a bang.
Less than two weeks ago Fed Chair Powell explicitly said that rates would remain higher for longer. With sustained price pressures inhousing, wages and energy mean the central bank still has a long way to go in its fight against inflation, investors may be in for another letdown.
Stocks are still down sharply this year. And the CNN Business Fear & Greed Index, which measures seven indicators of investor sentiment, is still showing Extreme Fear levels. The Monday market rebound could be a bad news is good news rally.
The Economy is Steady: Implications of a Fed-Centric Rate Increase for the 10-Year Treasury Yield
The 10-year Treasury’s yield is currently around 3.89% even though the bond market was closed Monday. The 10-year yield hit its highest level in more than a year late last month, and is heavily influenced by the direction of mortgage rates.
A week ago, traders had a 70% chance that the Fed would raise interest rates at its next meeting on November 2. Now the chances of a rate hike that large are down to about 50%, as the probability of a more modest half-point increase grows.
The Institute for Supply Management, a non-profit economic association, reported that its influential manufacturing index fell from August and was below Wall Street’s forecasts. That could be a sign that the Fed’s rate hikes are already having the desired effect of slowing the economy and reducing inflation.
In the manufacturing sector it’s become clear that the economy is slowing. The good news is that there are welcome signs that prices are stabilizing,” said Jim Baird, chief investment officer with Plante Moran Financial Advisors, in a report Monday.
The energy sector was the best performer of all the sectors in the S&P 500. Reports said that the Organization of the Carribean+ group of oil producers are considering a production cut to try and reverse the decline in crude prices.
Investors may also have taken solace in the fact that the British pound, which has recently tumbled to record lows versus the US dollar, rebounded after the new UK government abandoned a controversial plan to cut taxes for the wealthiest Brits.
Stock prices, costs, and the labor market: a warning from the Fed to expect the US to enter recession in the next few years and why the stock market is resilient
In corporate news, Tesla
(TSLA) was one of the few stocks that didn’t take part in Monday’s rally. The electric car giant fell as a result of disappointing third quarter delivery and production numbers over the weekend, making it the worst performer in the S&P 500.
Investors winced on Friday, as fresh data about the health of the labor market paved the way for the Federal Reserve to deliver another bumper increase to interest rates next month, raising costs for companies and weighing on stock prices.
Futures on the S&P 500 fell sharply lower, eroding earlier gains and dropping to a loss of more than 2 percent for the day. The fall comes after another drop on Wednesday — the sixth daily decline in a row — which took the index to a new low for the year.
American employers added 263,000 jobs in September, down from 315,000 in August, the Labor Department said early Friday. While the slight slowdown in hiring offered another signal that the Fed’s efforts to cool the economy and reduce inflation were having an effect, it was balanced against a drop in the unemployment rate to 3.5 percent from 3.7 percent, reinforcing a sense that the labor market remains robust.
Typically a sign of economic strength, at the moment a resilient labor market is bad news for investors, as it points to the need for the Fed to raise interest rates even more than it already has. Higher rates, in turn, raise costs for companies, weighing on stock prices.
The Columbus Day that had been celebrated on Wall Street didn’t go well. The US is likely to enter a recession within six to nine months according to Jamie Dimon, the CEO of JPMorgan Chase, in remarks that sent the stock market lower.
Shares of JPMorgan Chase
(JPM), which is one of the 30 stocks in the Dow, were down nearly 1%. JPMorgan Chase
(JPM) is one of several big banks that will report earnings on Friday.
The stock market is down, sellers are coming, and the rest of the economy will slow down after a hotter than expected inflation reading on Thursday
But sellers have returned with a vengeance in the past few days. Friday’s mostly solid jobs report did little to dispel fears about more big rate hikes from the Fed.
The Nasdaq hit a new 52-week low Monday. The Dow and S&P 500 are not far from their lows either. The other two big market indexes are both in a bear market and the Dow is down 20% this year.
Lael Brainard mentioned challenges in the housing market in a speech. Brainard said that the moderation in demand was mostly realized so far, and that the transmission of tighter policy was most evident in the housing sector.
Brainard also warned that “in other sectors, lags in transmission mean that policy actions to date will have their full effect on activity in coming quarters.” In other words, the rest of the economy could soon slow.
The stock market dropped on Thursday after a hotter than expected inflation reading helped cement expectations for a Federal Reserve interest rate increase next month.
Inflation, the First Mile of a Marathon, and Predictions for the Next Mile of the Running Course in the Wall Street Wall
U.S. government bond yields, which serve as benchmarks for borrowing costs and are influenced by Fed moves, jumped. The two-year Treasury yield soared 0.15 percentage points, a big move for an asset that typically moves in hundredths of a percentage point.
Inflation rose from the prior month for the second month in a row as reported by the Consumer Price Index for September.
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Stocks had been riding high this month on weaker-than-expected inflation and a number of stronger-than-expected reports on the broad economy and the job market. Investors were hopeful that the Federal Reserve could slow its historic pace of rate hikes and inflation could right itself sometime next year without tipping the economy into a recession.
The report is only one piece of the puzzle in a sea of economic data. But if inflation continues to moderate in November, that could be enough to convince the Fed to ease its rate of hiking.
There is some good news about the first mile of a marathon. The latest report is good news, and it is possible that a soft or soft-ish landing is still possible. That is good for the markets.
The economy could weaken less if the Fed doesn’t have to tighten as aggressively, wrote Bill Adams in a note.
The crypto winter of 2020: Bitcoin prices have been up nearly as much as expected since the Covid-era, and the dollar has risen sharply
This isn’t the first time that there has been a so-called crypto winter. Bitcoin prices have been notoriously volatile over the past few years, but they have still done better than many major stock market indexes.
Unfortunately, those assets have gotten hit just like stocks and bonds, proving there really is no place to hide in a market where worries about rate hikes and recession reign supreme.
A crypto thaw: Bitcoin soared through the Covid-era on the wings of near-zero interest rates, stimulus cash and a big influx of investors from large-scale institutions. It reached a record high of nearly $70,000 in November.
Then, central banks started raising rates to fight inflation, and the dollar strengthened significantly, seducing investors as the ultimate safe haven. While the economy began to sour, people who still viewed bitcoin as a risky asset left in droves.
Just look at bitcoin prices since the summer of 2020. Even though it has been a rough ride, they are up more than 80%. The Nasdaq, by way of comparison, is only up about 1% from July 2020 levels.
Source: https://www.cnn.com/2022/11/11/investing/premarket-stocks-trading/index.html
The 2022 Fed Rate Increase: Millennials Aren’t Ready to Buy a Home, And the Fed Is Going Out of Business
Mortgage rates have risen throughout most of 2022, spurred by the Federal Reserve’s regime of interest rate hikes. Last week, the Fed announced it would raise interest rates by another 75 basis points, the sixth rate increase this year and the fourth-consecutive hike of that size.
Because of this drastic change in the cost to finance a home, sales have dropped for eight months running, according to the National Association of Realtors. A survey from Fannie Mae found that only a small number of people think this is a good time to buy a home.
The sell-off has been broad, only 12 companies in the S&P 500 are trading in the green. Real estate and energy sectors have been hit the hardest the hardest, down more than 3.3% and 2.1%, respectively.
That excitement continued right up until Fed Chair Jerome Powell crashed Wall Street’s party Wednesday with some tough news: Economists at the Fed believe US gross domestic product, the broadest measure of America’s economy, will barely grow next year. And they predict the US unemployment rate will rise to 4.6% by the end of 2023, which means roughly 1.6 million more Americans will be out of work.
Adobe and Facebook parent company Meta are the markets largest gainers today, up 3.6% and 3.4%, respectively. Adobe reported better-than- expected quarterly earnings and guidance. Meta, which is still down nearly 65% for the year, saw a tick after JPMorgan upgraded shares of the company to neutral from overweight.