S&P 500 nears 52-week low
The S&P 500 came within four points of its 52-week low during Monday’s volatile trading session, weighed down by falling semiconductor and technology stocks.
At lows of the day, the S&P 500 fell to 3,588.10. The indexes current 52-week low is the 3,584.13 level it hit on Sept. 30.
Markets will have new inflation data to react to every day this week
Markets are gearing up for a major week of inflation data that could move bonds and stocks for the rest of the week after a low-volume Monday.
On Tuesday, the New York Fed survey of consumer expectations, including what they think of inflation, comes out. On Wednesday and Thursday, the producer and consumer price indexes will be released. Then, on Friday, Consumer sentiment is released.
“Bond markets are closed today but I have a feeling they’re going to be busy digesting all of the inflation data that’s coming out,” said Shawn Cruz, Head Trading Strategist at TD Ameritrade. He added that inflation data has driven much of the market’s choppiness lately, as it will depend how aggressive the Federal Reserve is with continued rate hikes going forward.
— Carmen Reinicke
Brainard says Fed is watching global ‘spillovers’ and ‘lags’ of rate hikes
Fed Vice Chair Lael Brainard said at an event in Chicago that the central bank was seeing “tentative” signs of a cooling labor market and acknowledged that “lags in transmission” mean that the Fed’s recent rate hikes will have a growing impact on non-housing sectors of the economy in the coming months.
Brainard also said the Fed was aware of the impact of hikes on the global economy, and not just in the U.S.
“The combined effect of concurrent global tightening is larger than the sum of its parts. The Federal Reserve takes into account the spillovers of higher interest rates, a stronger dollar, and weaker demand from foreign economies into the United States, as well as in the reverse direction. We are attentive to the risk of further adverse shocks—for instance, from Russia’s war against Ukraine, the pandemic, or China’s zero-COVID policies,” Brainard said.
Brainard did not reveal her preference for the size of rate hikes going forward nor suggest that the Fed pause its tightening process, but stocks appeared to rebound slightly after the comments were released.
Brainard also pointed to high profit margins in some sectors, such as auto dealerships, as proof that rate hikes have not yet had their desired impact.
“Monetary policy will be restrictive for some time to ensure that inflation moves back to target over time. It will take time for the cumulative effect of tighter monetary policy to work through the economy broadly and to bring inflation down,” she said.
—Jesse Pound
Pharmaceutical companies among stocks with unusual volumes
Pharmaceutical companies Immunic and scPharmaceuticals were moving with unusually heavy volumes during day trading Monday.
Immunic shares shot up 49.5% following news of a securities purchase agreement with a 10% upside to Friday’s closing price. The company focuses on the treatment of chronic inflammatory and autoimmune diseases.
scPharmaceuticals plunged 21.7% after the company announced it entered into a $100 million debt financing agreement with Oaktree Capital Management. The company also announced Monday it received Food and Drug Administration approval for FUROSCIX, which treats congestion due to fluid overload in adults with certain types of chronic heart failiure.
Bank of England’s stimulus moves send bond yields soaring
The Bank of England’s efforts to exit its ultra-easy monetary policy reverberated through bond markets Monday, sending UK yields higher and leading traders to up their best on rates in the U.S.
An announcement from the BofE indicated that the central bank will implement measures to achieve an “orderly end” to its scheduled termination Friday of its quantitative easing program. The bank said it will launch multiple liquidity facilities to make sure markets continue to function properly amid the QE exit.
Yields on 10-year gilts jumped nearly 23 basis points to 4.455% by 1 p.m. New York Time. Other areas across the yield curve moved even higher. German 10-year bund yields jumped in kind, moving to 2.34% after earlier hitting the highest levels since November 2011.
At the same time, the fed futures contracts priced in higher rates in the U.S. The April 2023 contract implied a rate of 4.715%, well above the current range of 3%-3.25% and the Fed’s unofficial forecast terminal rate of 4.6%.
The BoE’s move was seen parts of the market as a gamble to restore its credibility following weeks of volatility.
“Whether the government succeeds or fails in shoring up fiscal credibility will define the trade-off facing the Bank,” Krishna Guha, head of central bank strategy for Evercore ISI, said in a note. “If it fails, the market rate curve will move up further, and the Bank will face a near-impossible trade-off between validating these expectations and crushing the economy and housing market, or trying to deliver less than the market expects, and crashing sterling and risking inflation expectations.”
The U.S. bond market was closed Monday for the Columbus Day holiday.
—Jeff Cox
The light at the end of the tunnel is an earnings recession train the Fed can’t stop, Morgan Stanley says
Instead of a light at the end of the tunnel, markets are barreling towards an earnings recession train that the Federal Reserve can’t stop, Morgan Stanley chief equity strategist Michael Wilson wrote in a Friday note.
“Fire and Ice remains in gear with M2 growth now into the danger zone where financial/economic stress occurs,” Wilson wrote, adding “while the Fed can fix this by restarting QE, it cannot stop the oncoming earnings recession.”
Morgan Stanley remains bearish and sellers of rallies until the price is right, and sees many macro risks including weakness in Europe, dollar strength, higher rates, China’s reopening in focus in corporate commentary in earnings.
The firm also sees that bear market conditions have not been met, so it’s too soon to call the end of the cycle.
—Carmen Reinicke
Jamie Dimon warns of U.S. recession in ‘six to nine months’
JPMorgan Chase & Co. President and CEO Jamie Dimon testifies during a U.S. House Financial Services Committee hearing titled “Holding Megabanks Accountable: Oversight of America’s Largest Consumer Facing Banks” on Capitol Hill in Washington, September 21, 2022.
Elizabeth Frantz | Reuters
JPMorgan CEO Jamie Dimon said Monday that the U.S. economy is likely to fall into recession during the spring or summer of 2023.
Dimon told CNBC’s Julianna Tatelbaum that persistent inflation, rising interest rates and the ongoing war in Ukraine were all factors hurting economies of Europe and the U.S.
“These are very, very serious things which I think are likely to push the U.S. and the world — I mean, Europe is already in recession — and they’re likely to put the U.S. in some kind of recession six to nine months from now,” Dimon said.
Dimon said that there is uncertainty about how bad a recession will be and is not predicting just a mild dip that some bullish investors are looking for.
“It can go from very mild to quite hard and a lot will be reliant on what happens with this war. So, I think to guess is hard, be prepared,” he said.
— Jesse Pound
Stocks making the biggest moves midday: Ford, Wynn Resorts and more
These companies are making headlines midday:
- Ford Motor, General Motors — Shares of Ford and GM fell 7% and 5% respectively, after UBS downgraded both stocks, saying the auto industry is moving toward vehicle oversupply following three years of unprecedented pricing power.
- Casino stocks — Shares of hotel and casino companies were the top decliners in the S&P 500, with Wynn Resorts down 11.6% and Las Vegas Sands losing 8.5%. MGM Resorts dipped by 3.5%. The moves came as Chinese cities reimposed Covid lockdowns thanks to a spike in daily cases over a weeklong holiday.
- Nvidia — The chip stock fell more than 4% to hit a 52-week low after the Biden administration published a sweeping set of export controls, including a plan to cut China off from certain semiconductor chips made with U.S. equipment.
Check out more midday movers here.
— Tanaya Macheel
Stocks down but off lows midday
Stocks slumped Monday and were in the red at midday trading, though off the lows of the day.
The Nasdaq Composite fell more than 1% to a new low Monday, but regained some of those losses to trade down about 0.94% at noon in New York. The S&P 500 shed 0.56% and the Dow Jones Industrial Average fell nearly 48 points, or 0.16%.
— Carmen Reinicke
Guidance is most important in third quarter earnings, BofA’s Subramanian says
In the upcoming earnings season, the kind of guidance that companies give about what they expect in the future is more important than what they report for the third quarter, according to Bank of America equity strategist Savita Subramanian.
“S&P 500 3Q EPS estimates have fallen 7% since July, more than the typical 4% cut into earnings,” Subramanian wrote in Sunday note. “Nine of the 11 sectors saw downward revisions to earnings, where Energy was the only sector with meaningful upward revisions.”
While overall economic data have help up in the third quarter, many indicators that Bank of America tracks suggest that a miss is likely for earnings.
“Our 3Q forecast of $50 (+2% YoY) is 1% below consensus’ $55.58 (+3% YoY),” Subramanian wrote. “But guidance is likely to matter most, and we see substantial downside risk to 4Q and 2023.”
In addition, the bank’s corporate misery is high given increased margin pressure, hits to demand and bloated inventories.
They’ll be watching for signs of further economic weakness going forward.
“Recession is top of mind for investors, and consumer weakness was evident during 2Q earnings,” wrote Subramanian. “Mentions of weak demand and layoffs will be closely watched. We calculate FX was a 3ppt hit to 3Q sales growth from translation,…
Read More: Nasdaq falls to 2-year low on Monday, led by a decline in chip stocks