Market News

S&P 500 Futures Climb a Rocky Path Amid Global Instability ?️?

/ October 16, 2023

At the start of the week, there were small rises in U.S. stock futures, as worries about tensions in the Middle East and the growth of Treasury yields were taken into consideration. How are stock-index futures trading On Friday, the Dow Jones Industrial Average (DJIA) went up by 39 points, representing a 0.12% increase, and reached 33670. The S&P 500 (SPX), on the other hand, dropped by 22 points, which translates to a 0.5% decline, and ended up at 4328. The Nasdaq Composite (COMP) experienced a decrease of 167 points, equivalent to a 1.23% drop, and reached 13407. What’s driving markets Equity traders are starting the week with uncertainty and caution as they are concerned about several factors including escalating tensions in the Middle East, oil prices crossing the $90 per barrel mark, higher Treasury yields, and the approaching corporate earnings season for the third quarter. According to Richard Hunter, who is the head of markets at Interactive Investor, investors are becoming more careful because they have to take into account a greater number of factors. According to Susannah Streeter, who is responsible for managing money and markets at Hargreaves Lansdown, the current conflict between Israel and Hamas is just another example of a geopolitical divide that, when coupled with the ongoing Ukraine-Russia warfare and the tensions between the United States and China, has the potential to negatively impact global economic progress. According to Streeter, JPMorgan Chase’s CEO, Jamie Dimon, has voiced worries about the world potentially entering a dangerous phase, overshadowing the bank’s positive financial results released on Friday. On Tuesday, some more prominent banks located on Wall Street, including Bank of America, Goldman Sachs, and BNY Mellon, are scheduled to make public their financial outcomes. The subsequent day, Wednesday, there will be a disclosure of the earnings of noteworthy technology companies such as Netflix and Tesla. The U.S. economic updates, including the Empire State manufacturing survey for October, are set to be released on Monday at 8:30 a.m. EST. The President of the Philadelphia Federal Reserve, Patrick Harker, has two speeches planned: one at 10:30 a.m. and another at 4:30 p.m. The reference rate for 10-year Treasury bonds, known as BX:TMUBMUSD10Y, rose by around 6 basis points and reached 4.685%. This increase in the yield is an indication of traders being careful because of recent positive economic data in the United States and signs of ongoing inflation, which could mean that interest rates will stay higher for a long time. Tom Lee, Head of Research at Fundstrat, suggests that investors should exercise caution in light of the current geopolitical circumstances. Nonetheless, he is optimistic about three factors that could potentially yield encouraging outcomes in the stock market. In a written message over the weekend, Lee mentioned that the decline in the US 10-year yield indicates a favorable direction for stocks. The second factor is that the likelihood of the Federal Reserve raising interest rates is predicted to decrease from 30% to nothing as they receive new information. “While some worry about the return of inflation, the Federal Reserve has stated that the rise in long-term interest rates is achieving the desired tightening effect,” he clarified. In the English language, the following paragraph can be paraphrased as: Furthermore, if there is a successful earning season in the third quarter, investment managers who currently have a shortage of $47 billion in U.S. equities are likely to make substantial purchases. Lee pointed out that Goldman Sachs has noticed this trend and predicts that a rising market will attract even more buyers.

Market News

The Treasurys’ Role: Will They Spark a U.S. Stock Market Surge Before Year-End?

/ October 15, 2023

Thierry Wizman of Macquarie suggests that the Federal Reserve will continue to maintain its “higher-for-longer” interest rate stance until it detects weaknesses in the consumer side of the market. The recent turbulence in the world’s largest bond market has placed significant pressure on U.S. stocks, as investors come to terms with the idea that high interest rates may persist well into 2024, pending a reduction in underlying inflationary pressures. The U.S. Treasury market, a cornerstone of the global financial system, has weathered a series of sell-offs since late September, pushing yields on 10-year and 30-year Treasurys to levels not seen since the lead-up to the 2008 financial crisis before experiencing a recent decline. In September, a bond market sell-off was triggered by the Federal Reserve’s hawkish outlook, along with concerns about the U.S. fiscal deficit, federal debt, and the potential for a government shutdown if the 2024 fiscal year budget remains unresolved by mid-November. However, this week, increased uncertainty related to the Middle East conflict led to heightened demand for safer assets, resulting in an increase in long-term bond prices and a decrease in yields. On Thursday, a Treasury bond auction saw reduced demand, despite notably higher yields, leading to another increase in longer-term rates. Concurrently, investors were confronted with inflation data showing elevated consumer prices in September, contributing to a drop in U.S. stocks. Investors are now questioning the conditions required for interest rates and bond yields to decrease in the coming months, potentially boosting stock markets as they approach year-end. Tim Hayes, the Chief Global Investment Strategist at Ned Davis Research, suggests that excessive pessimism in the bond market could set the stage for a relief rally in both stocks and bonds. According to Hayes, there may be less inflationary pressure than the market has anticipated, and a change in sentiment in the Treasury market may drive bond yields lower, benefiting equities. However, some analysts argue that disinflation might not be sufficient to prompt the Federal Reserve to abandon its “higher-for-longer” interest rate narrative, which has been a major driver of the surge in yields since September. Thierry Wizman of Macquarie believes that a slowdown in the consumer sector is necessary to alter the Fed’s stance and encourage a more flexible long-term outlook among policymakers. While the Fed is not currently signaling a removal of the “higher-for-longer” narrative, Wizman is confident that U.S. consumption data will weaken in the coming months, potentially due to consumer-product and -service companies providing guidance for the fourth quarter and consumers adjusting their spending for the holiday shopping season. While a consumer-side slowdown could benefit bonds, investors should remain cautious about buying into the stock market, as stock valuations could still appear elevated with Treasury yields at 16-year highs. The “higher-for-longer” narrative has been used by Fed officials to indicate the potential for sustained higher interest rates. However, Wizman sees it as a “publicity stunt” designed to tighten financial conditions in the short term. If consumer sector slowdown and ongoing disinflation can temper the Fed’s rate expectations, Treasury yields may continue to decline without requiring a major economic downturn. Additionally, the historical seasonality of the stock market suggests the possibility of a rally, as the fourth quarter has historically been strong for the U.S. stock market. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite have shown positive movements in the fourth quarter, contributing to the growing sentiment that bond yields may have reached their peak and equities could rally towards the end of the year. Yields on 10-year and 30-year Treasurys have experienced recent declines, with the 30-year yield posting its largest weekly drop in a while.

Market News

Milestone Alert: A Year After the Bear-Market Low

/ October 14, 2023

Reflecting on One Year Since the Bear-Market Low Not everyone is reaching for the champagne as we commemorate the first anniversary of the S&P 500’s bear-market low on Oct. 12, 2022. The significant rebound from the bear-market abyss on June 8, with a surge of more than 20% from the October low, has led to different opinions on whether this marks the beginning of a new bull market. For some experts, the 20%+ surge from the October low backdated to June marked the inception of a new bull market. Others are waiting for the S&P 500 to surpass its previous high from January 2022 before bestowing the bull market label. And some are meticulous about meeting specific criteria before making any announcements. Regardless, this anniversary offers an opportunity to assess how the stock market has performed since the bear-market low. Those inclined to categorize it as a bull market might not be celebrating the strongest start. Ryan Detrick, Chief Market Strategist at Carson Group, highlights that the S&P 500’s 22.4% gain during its first year falls short of the median first-year gain of 33.5% based on data since 1956. Yet, there’s a bright side – the S&P 500 experienced a 29% surge in the second year of the post-1987 rally, marking it as the most vigorous. Although the stock market has made efforts to stabilize, the S&P 500’s pullback of just under 10% from its 2023 high on June 30 casts a shadow. Some skeptics are concerned that the bull market may have already ended due to factors such as increasing interest rates, oil prices, bond yields, and the strengthening U.S. dollar. Sam Stovall, Chief Investment Strategist at CFRA, emphasizes that each S&P 500 bull market since 1949 only came to a close after completely recovering from the previous bear market’s losses. The current bull has only retraced 83% of its decline. Stovall’s conviction lies in the fact that there have only been three “bogus bulls” since World War II, and historical data shows that positive S&P 500 returns through September have led to full-year gains 96% of the time. However, your perception of this bull market might depend on the company you keep. The stock-market rally is still primarily driven by a handful of mega-cap tech stocks. An equal-weighted measure of the S&P 500 indicates more moderate gains, just over 11% in the past year. The chart below provides a glimpse of the top 25 best- and worst-performing stocks in the large-cap Russell 1000 index since October 12 last year: On average, the stocks in the index have risen by about 15% over the year. However, the chart illustrates the winners surging by 90% or more, while the losers have fallen over 40%. The question remains: Were you fortunate enough to own the big winners and dodge the big losers during this market journey?

Market News

Stock Market Turbulence: Yields on the Rise as Bond Traders Lead the Way

/ October 13, 2023

The Treasury sector, with a staggering $25 trillion under its sway, remained in control of the financial market on Thursday. Long-dated yields were once again approaching the 5% mark, influencing the equities market and aiding the resurgence of the greenback to recover this week’s losses. Investors resumed a strong sell-off of government bonds, propelling 10- and 30-year yields to their highest levels in 16 years. Their substantial one-day jumps, the most significant in over a week, led to closing figures of 4.71% and 4.87%, respectively, at the end of the New York trading session. This disrupted a two-day rally observed until Wednesday, driven by speculations of a potential end to Federal Reserve rate hikes. The release of hotter-than-expected September headline inflation figures from the consumer price index on Thursday increased the market’s expectation of a Federal Reserve rate hike in December. This data also cast doubt on policymakers’ reliance on the recent surge in long-term yields as an unofficial tool for tightening financial conditions, potentially negating the need for another rate hike, as many analysts have suggested. “The bond market is still king,” affirmed Marc Chandler, the chief market strategist at Bannockburn Global Forex in New York. He pointed out that the post-CPI broad-based Treasury sell-off was boosting the dollar’s performance and exerting downward pressure on the stock market, which had seen a four-day rally. While it remains too early to discern the exact impact of higher long-term rates on Fed policy, it is clear that the market’s response to September’s CPI inflation data undermines the central bank’s primary arguments for forgoing another rate hike, Chandler asserted. One of the pivotal questions for policymakers pertains to the underlying cause of the recent dramatic surge in yields. Dallas Fed President Lorie Logan suggested that if it is primarily attributed to the strength of the U.S. economy, the Fed “may need to do more.” On the other hand, if the increase is driven by higher term premiums, it might reduce the necessity for raising the fed funds rate. Term premium signifies the extra compensation investors demand for holding a bond over its entire lifespan. Since the Federal Reserve’s policy decision on September 20, which reiterated the theme of higher interest rates for a more extended period, 10- and 30-year Treasury yields saw substantial increases. However, with the bond market closed on Monday for Columbus Day and Indigenous Peoples Day, both rates saw temporary dips on Tuesday and Wednesday before ascending once again on Thursday. According to Bannockburn’s Chandler, Thursday’s Treasury-market movements are driven primarily by inflation and the nation’s economic strength, rather than term premiums. He predicts that both rates will continue to test the 5% yield mark, considering the renewed ascent during the New York trading session. The demand seen earlier in the week for government debt, which pushed prices higher after the outbreak of conflict in the Middle East, is viewed as a short-lived “dead cat bounce.” On Thursday, yields for Treasury securities ranging from 6 months to 30 years were broadly higher, with 10- and 30-year yields recovering all their Wednesday declines. The three major U.S. stock indices, DJIA, SPX, and COMP, concluded lower, while the ICE U.S. Dollar Index (DXY) rebounded 0.7%, effectively erasing most of its weekly losses. The movement of the dollar is influenced by investors’ perceptions of U.S. interest rates relative to other nations, while stocks tend to suffer due to the anticipation of higher business costs and less attractive returns compared to government bonds. Simultaneously, fed funds futures traders priced in a 31.4% probability of a quarter-point Fed rate hike in December, potentially elevating the main interest-rate target to a range of 5.5%-5.75%. They also estimated a 32.1% likelihood of such a move by January, leading the policy-sensitive 2-year rate to reach an intraday high of 5.08% in New York trading. The minutes of the Fed’s September 19-20 meeting, released on Wednesday, indicated that most policymakers believed that another rate increase would be appropriate at a future meeting, although they emphasized the need for caution. Fed Gov. Christopher Waller and Fed Vice Chair Philip Jefferson both indicated that the recent surge in Treasury yields had been performing some of the Federal Reserve’s work in slowing down the economy. Economist Thomas Simons of Jefferies noted that policymakers had previously pointed to long-end yield increases as an effective tool for tightening conditions. However, the recent data release seems to challenge that notion, potentially increasing the likelihood of a more hawkish stance from Fed Chair Jerome Powell at the upcoming press conference and raising market expectations of a rate hike in December.

Market News

Inflation Insights: U.S. Stocks Open Slightly Higher Today

/ October 12, 2023

Thursday’s U.S. stock market opening saw a slight uptick, with investors carefully analyzing fresh inflation data that indicated a modestly higher-than-expected increase in headline consumer prices for the previous month. Shortly after the opening bell, the Dow Jones Industrial Average (DJIA) showed a 0.1% gain, while the S&P 500 (SPX) and the Nasdaq Composite (COMP) both posted a 0.1% increase, according to the latest FactSet data. As reported by the Bureau of Labor Statistics, the consumer price index recorded a 0.4% rise in September, slightly exceeding the 0.3% increase predicted by economists surveyed by the Wall Street Journal. Core CPI, which excludes food and energy prices, matched economists’ expectations with a 0.3% increase for the same month. Annual headline inflation held steady at 3.7% for the 12 months through September, while the core CPI rate eased to 4.1% for the year through the previous month, down from 4.3% in August. In the bond market, Treasury yields were on the rise, with the 10-year Treasury note yield increasing by three basis points to 4.60%, and the two-year yields rising by around five basis points to approximately 5.05%, according to the latest FactSet data.

Market News

S&P 500 Futures Hit Pause Button Amidst Inflation Data and Fed Minutes

/ October 11, 2023

Early on Wednesday, the recent surge in U.S. stock futures came to a temporary halt as market participants focused on upcoming events, including the release of inflation data and the kickoff of the corporate earnings season. Current Activity in Stock-Index Futures: Recent Market Performance: On the previous trading day, the Dow Jones Industrial Average (DJIA) witnessed a 135-point increase, equivalent to a 0.4% gain, closing at 33739. The S&P 500 (SPX) showed a 23-point climb, reflecting a 0.52% increase, closing at 4358. The Nasdaq Composite (COMP) reported a 79-point rise, marking a 0.58% increase, closing at 13563. Driving Forces in the Market: Over the past three trading days, the S&P 500 has enjoyed a 2.35% rise, primarily driven by a significant decline in the yield on 10-year Treasurys (BX:TMUBMUSD10Y), which receded by approximately 20 basis points from the recent 16-year peak observed last Friday. This drop in long-term implied borrowing costs follows recent statements from Federal Reserve officials, hinting that the central bank might have concluded its cycle of interest rate increases. Richard Hunter, Head of Markets at Interactive Investor, remarked, “Markets continued to trend upwards as the uncertainties related to the Middle Eastern conflict were mitigated by a further moderation in the Federal Reserve’s language.” While bond yields have declined further on Wednesday, the gains in stock-index futures have been modest, with traders adopting a more cautious approach as they brace for crucial economic data releases and corporate earnings reports in the coming days. Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, noted, “The surge in optimism, driven by hopes that the Fed will take a more lenient approach with its interest rate policies, seems to have hit a plateau. Investors are showing a bit more restraint as they look forward to tomorrow’s release of U.S. inflation data.” On the economic front, the U.S. consumer price index report for September is scheduled for publication before the market opens on Thursday. Additionally, investors are eagerly awaiting the release of producer prices data for September at 8:30 a.m. Eastern, along with the minutes from the Federal Reserve’s previous policy meeting at 2 p.m. Streeter emphasized that “investors are highly sensitive to data, and if U.S. inflation shows any signs of deviating from its downward trajectory, it could unsettle the markets and challenge expectations of a more dovish stance from the Federal Reserve.” Wednesday also brings a series of speeches from Federal Reserve officials. Fed Governor Christopher Waller is expected to deliver remarks in Park City, Utah, at 10:15 a.m., Atlanta Fed President Raphael Bostic is scheduled to discuss the economic outlook at 12:15 p.m., and Boston Fed President Susan Collins will give the Goldman Lecture on Economics at Wellesley College at 4:30 p.m. Traders are also eagerly anticipating the start of the third-quarter corporate earnings season, which kicks into high gear with major banks such as JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) set to release their earnings reports on Friday.

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