Market News

Fed Focus: U.S. Stock Futures Up as Powell Prepares to Speak

/ September 20, 2023

U.S. stock futures are on a modest uptick as traders eagerly await the Federal Reserve’s decision and Chairman Powell’s remarks. In the meantime, oil prices have pulled back from their recent 10-month highs, and Treasury yields have eased from multi-year peaks. Current State of Stock Futures: Market Performance from Tuesday: Market Outlook: U.S. markets are exhibiting a subdued tone as traders brace themselves ahead of the Federal Open Market Committee’s policy decision, slated for 2 p.m. Eastern time. This year, the S&P 500 has made significant gains, partly fueled by expectations that the Fed’s monetary tightening will conclude without causing significant harm to the economy. Tom Lee, Head of Research at Fundstrat Global Advisors, highlights that “Investors are naturally apprehensive that Wednesday’s FOMC press conference could trigger higher interest rates and a consequent sell-off in stocks.” Traders are currently pricing in a 99% likelihood that the Federal Reserve will maintain rates within the 5.25%-5.50% range, according to the CME FedWatch Tool. Nevertheless, there’s a 29% chance of a 25-basis-point rate hike to a range of 5.50%-5.75% at the subsequent meeting in November. Recent robust U.S. economic data and this week’s surge in oil prices have raised concerns about lingering inflationary pressures, potentially necessitating the central bank to maintain elevated borrowing costs. Thierry Wizman, global FX and interest rates strategist at Macquarie, suggests that the surge in oil prices could make the FOMC more hesitant to convey a dovish stance. Consequently, traders will closely monitor the Fed’s release of its “dot plot” forecast for policy interest rates at 2 p.m., as well as Chair Jerome Powell’s press conference at 2:30 p.m., for any market-shaping information. Stephen Innes, managing partner at SPI Asset Management, points out that yields on 10-year U.S. Treasuries are reaching new cycle highs, and investors seem inclined to maintain their dollar positions, signaling a hawkish direction. Matthew Raskin, strategist at Deutsche Bank, notes that traders’ primary focus will center on the Fed’s economic projections and the “dot plot.” Any shifts in these indicators will be closely analyzed for implications, with the degree of these shifts and Powell’s interpretation of them playing a pivotal role. Companies in the Spotlight:

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The Algorithmic Advantage: How HFT Reshapes Finance

/ September 20, 2023

High-Frequency Trading (HFT) constitutes a form of algorithmic trading characterized by the execution of an extensive volume of trades at astonishing speeds. Here’s an overview of how this operates: ? TRADING VELOCITY The speed at which HFT operates is nothing short of astounding: ? THE FLASH CRASH OF 2010 The Flash Crash of May 6, 2010, remains a pivotal event in the history of HFT. Here’s a synopsis of the events: In summary, High-Frequency Trading relies on lightning-fast algorithms and technology to execute trades within microseconds. While it has reshaped the financial landscape, it also carries risks, as exemplified by the flash crash of 2010. Regulators remain vigilant, monitoring and regulating HFT to preserve market stability and fairness.

Market News

Fed’s ‘Hawkish Pause’ Looms Large Over Wall Street

/ September 19, 2023

The S&P 500 closed at approximately 4,450 points. Brent oil experienced initial gains but eventually fell after briefly reaching $95 per barrel on Monday, raising concerns about inflation. Apple Inc. witnessed a rise in stock value, whereas Tesla Inc. witnessed a decline due to Goldman Sachs Group Inc. reducing their earnings forecasts for the electric car company. The yield on 10-year Treasury notes decreased slightly, while the yield on two-year notes remained above 5%. Starting with the Federal Reserve on Wednesday and ending with the Bank of Japan two days later, significant meetings will occur involving half of the Group of 20 nations to decide on monetary policy. The central banks of developed economies may attract additional scrutiny as global policymakers adapt to the idea proposed by US officials at the Jackson Hole conference in August, indicating that interest rates may likely stay higher for a longer duration. Traders will be watching the dot plot summary of economic predictions carefully as the Federal Reserve is expected to keep interest rates stable this week. The main concerns revolve around whether policymakers will stick to their forecast of a 0.25% increase by the year-end and how much easing they anticipate for 2024. The previous projection in June indicated an expected decrease of 1 percentage point. Megan Horneman, the head of investment strategy at Verdence Capital Advisors, anticipates that the Federal Reserve will pause its interest rate hikes for now and adopt a more careful approach. However, Horneman believes that the futures market will still respond and raise the chances of another rate hike by the end of the year. Horneman expresses worry about a potential rise in inflation, particularly if energy prices begin to impact overall costs. As a result, she suggests that the Federal Reserve may need to indicate that they are not yet done with increasing rates. David Kelly, the chief global strategist at J.P. Morgan Asset Management, anticipates that the Federal Reserve will stick to a strong position, indicating possible increases in interest rates until 2023. Nonetheless, Kelly also recognizes the chance of a slower and more gradual method of relaxation in the coming years. Despite these intentions, there is a worry that if there is an economic downturn, the Fed may have to adopt a more forceful and rapid approach to easing. Kelly recommends having a diverse investment portfolio, emphasizing a careful approach to stocks and a focus on long-term fixed income investments. This is necessary because there is a growing chance of an economic decline as monetary tightening continues. Lisa Shalett, a specialist in Morgan Stanley Wealth Management, states that even though certain investors are hopeful about the advancements in headline inflation, a crucial indicator closely observed by Fed Chair Jerome Powell suggests an extended period of elevated interest rates. The speaker noted that the US stock markets are eagerly predicting a favorable scenario where interest rates rise to their peak and both the economy and corporate earnings experience a resurgence. However, she is skeptical about the argument that growth will accelerate and profit margins will expand, which is the optimistic viewpoint. Instead, she believes it is more probable that US stocks will remain relatively stable over the next six to nine months, with only minor fluctuations in earnings and market multiples. Paul Nolte, who works at Murphy & Sylvest Wealth Management, notes that the current two months, known for their relative weakness, are aligning with his expectations and following the usual pattern. Nolte claimed that according to the playbook, there will be a continued decrease in the upcoming weeks until October’s middle or end, and thereafter, a surge by the year’s end. This surge is anticipated due to the expected rise in earnings during this quarter. Typically, when earnings increase, stock prices also tend to rise. Nonetheless, numerous stocks in the market are already valued quite high compared to past norms, so there may not be ample space for additional growth.

Market News

U.S. Stock Futures Seek Recovery Path Amid Persistent High Yields

/ September 18, 2023

On Monday, there was a slight increase in stability in the U.S. stock market. However, investors were still being careful because of the rise in bond yields and their anticipation for the Federal Reserve policy meeting that would conclude on Wednesday. How are stock-index futures trading The S&P 500 futures, referred to as ES00, decreased by 1.75 points or slightly under 0.1%, to reach a value of 4,496.25. The Dow Jones Industrial Average futures were indicating a slight decrease of 0.01%, but were still in positive territory with a gain of 14 points or less than 0.1%, reaching a value of 34,941. The Nasdaq 100 futures declined by 0.1% and fell by 22.75 points, reaching a level of 15,369.50. Last week, the Dow Jones Industrial Average saw a small rise of 0.1%, while the S&P 500 had a decline of 0.2% and the Nasdaq, which focuses on technology, experienced a drop of 0.4%. Both the S&P 500 and Nasdaq suffered losses for two consecutive weeks. What’s driving markets Stocks were encountering challenges in rebounding after experiencing a major drop in value, whereas interest rates on benchmark bonds were gradually getting back to levels that had not been witnessed in 16 years. Investors were carefully monitoring a week filled with notable activities conducted by central banks. Worries about inflation staying higher than the Federal Reserve’s desired rate of 2% were voiced when the S&P 500 saw a 1.2% decrease on Friday due to a mix of better-than-anticipated economic updates and rising oil costs. The concerns were reflected in the prices of government bonds, with the implied costs of borrowing for 10-year Treasury bonds rising to 4.353%. This rate is just slightly below the highest rate observed since 2007. Furthermore, the price of U.S. crude oil futures exceeded $91 per barrel, marking the highest price since November of the previous year. Investors are growing concerned about the recent surge of data indicating a rise in inflation and the potential for long-lasting higher interest rates. This situation could adversely affect the S&P 500 Index, especially considering its significant reliance on large technology companies. Stephen Innes, who works as a managing partner at SPI Asset Management, expressed this apprehension. The central banks’ outlook on these happenings will become more evident in the following week. The Federal Reserve will reveal its decision on policies during the middle of the week, while the Bank of England will do so on Thursday and the Bank of Japan on Friday, all based on their own local dates. Richard Hunter, who is the head of markets at Interactive Investor, believes that even though the Federal Reserve’s decision on Wednesday is expected to remain unchanged, the additional comments made alongside the decision could offer valuable insights into their present viewpoint. Hunter stated that investors have differing opinions on the future prospects for the upcoming year. Consequently, the most recent perspectives expressed by the Federal Reserve might potentially have a notable effect on the market. According to Jonathan Krinsky, a technical strategist at BTIG, the rising value of the dollar (DXY) is leading to a decrease in overall sentiment. He points out that last week, three significant factors affecting various assets – the dollar, interest rates, and crude oil – all continued to rise. However, it was not until Friday that the impact of these factors became noticeable in the stock market. Jonathan Krinsky, a technical strategist at BTIG, suggests that the expanding worth of the dollar is also having a negative effect on enthusiasm. In a written statement, he stated that the three primary challenges in several financial sectors (the dollar, interest rates, and crude oil) have been consistently growing, but it wasn’t until Friday that the stock market appeared to become aware of this. The U.S. economy will receive updates on Monday, which will include the release of the September home builder confidence index at 10 a.m. Eastern time. Companies in focus Following Mizuho’s upgrade of DoorDash Inc.’s rating to a buy, the company’s stock experienced a rise of more than 2% in premarket trading.

Market News

Beating the Market: Myth or Reality? Let’s Investigate!

/ September 17, 2023

In the first half of 2023, a substantial 57% of actively managed mutual funds and ETFs managed to surpass their respective benchmarks. This might initially suggest that consistently outperforming the market has become more feasible. However, it’s crucial to maintain perspective and resist the temptation to believe that consistently beating the market is an easy feat, especially when managing retirement portfolios like 401(k)s and IRAs. A recent report from Morningstar may seem optimistic, revealing that a significant portion of actively managed funds and ETFs are exceeding their benchmarks. Notably, in the “U.S. Small Blend” category, an impressive 74.7% of funds and ETFs outperformed their benchmarks. These statistics deviate from what we’ve grown accustomed to over the years. Nonetheless, the reality is more complex than this report might suggest. It’s not because Morningstar’s calculations are inaccurate, but rather because when one group of active managers beats the market, another group inevitably lags behind. Moreover, when transaction costs are factored in, the average market-weighted return of all active managers must, by necessity, fall below the market’s overall return. So, it’s crucial to understand that the market hasn’t become inherently easier to beat. This argument echoes the insights put forth in a groundbreaking article by William Sharpe, the 1990 Nobel laureate in economics, published in the January/February 1991 issue of the Financial Analysts Journal. Sharpe’s “The Arithmetic of Active Management” demonstrates that, on average, active managers are bound to trail broad market indexes, a conclusion derived from basic mathematical principles. Sharpe’s analysis challenges various assertions about why numerous funds and ETFs have seemingly outperformed the market this year. Some claim that the increasing dominance of index funds has made the stock market less efficient, making it easier to beat. Others argue that managers are now more intelligent and sophisticated, while some credit artificial intelligence for enhancing market-beating capabilities. However, Sharpe’s arithmetic-based argument acknowledges that isolated instances of individual managers surpassing the market can occur, primarily over the short term. But for every manager who outperforms, another must, by necessity, underperform, turning beating the market into a zero-sum game before transaction costs and a negative-sum game afterward. This is why, as illustrated in the accompanying chart, the percentage of large-cap growth funds consistently beating their benchmarks averages well below 50%. Drawing from over 40 years of experience in the industry, it’s unlikely that many will be swayed by Sharpe’s argument and will persist in believing that they can consistently beat the market. One practical solution, which balances your belief with Sharpe’s logic, was proposed by the late Harry Browne, editor of “Harry Browne’s Special Reports.” Browne’s recommendation involves creating two distinct portfolios: a Permanent portfolio and a Speculative portfolio. The former comprises the majority of your assets and is invested in index funds for the long term with minimal changes. The Speculative portfolio, on the other hand, accommodates your risk-taking tendencies as you attempt to outperform the market. Browne’s approach is astute because it acknowledges both the mathematical veracity of Sharpe’s argument and the psychological reality that many investors believe they are above average. By primarily relying on the Permanent portfolio, you safeguard your retirement financial security while, in your Speculative portfolio, you satisfy the part of your psyche that aspires to beat the market. While there will be instances, like the current year for actively managed mutual funds and ETFs, when your Speculative portfolio outperforms the Permanent one, it’s likely that, over the long term, the latter will yield superior results. Nevertheless, as long as you structure your two portfolios prudently, there’s no harm in attempting to prove this theory wrong.

Market News

S&P 500’s Rollercoaster: Weekly Losses Continue Amid Auto Strike

/ September 16, 2023

Dow Maintains Its Weekly Gains Despite Friday’s Stock Market Downturn On Friday, the U.S. stock market closed with losses as investors grew concerned about rising inflationary pressures ahead of the Federal Reserve’s upcoming meeting, along with an ongoing auto workers’ strike adding to market unease. Here’s a summary of how the key stock indices performed: For the week, the Dow managed to secure a modest 0.1% gain, while the S&P 500 slipped 0.2%, and the tech-focused Nasdaq registered a 0.4% decline. These numbers, according to Dow Jones Market Data, meant both the S&P 500 and Nasdaq faced consecutive weekly losses. Factors Influencing the Market Persistent inflation concerns continued to put pressure on stocks, with Treasury yields inching higher. Additionally, there was apprehension among investors regarding the ongoing auto workers’ strike. Marco Pirondini, Head of Equities for Amundi U.S., commented on the challenging inflation scenario, noting, “The market is starting to recognize that the Fed will maintain high-interest rates for an extended period.” The Federal Reserve, in its efforts to cool down the economy and combat escalating living costs in the U.S., is slated to hold a policy meeting in the upcoming week. Traders anticipate the central bank will maintain its benchmark rate within the current target range of 5.25% to 5.5%. Pirondini emphasized that the U.S. economy remains “fairly strong,” making it difficult to rein in inflation. Fresh economic data for the day outperformed expectations, with U.S. industrial output and manufacturing activity in New York state both exceeding forecasts. The Fed reported a 0.4% increase in industrial production for August, surpassing economists’ expectations of a 0.2% gain. Simultaneously, the New York Fed revealed positive data from its Empire State manufacturing survey, with the business conditions index reaching 1.9 this month, contrary to the expected negative reading. Another focal point for investors was the United Auto Workers’ strike against the Big Three U.S. automakers: Ford Motor Co. (F), General Motors Co. (GM), and Chrysler owner Stellantis (STLA). Although initially seen as a minor market event, analysts expressed concern that a protracted strike could drive up car prices, exacerbating inflation pressures and affecting the broader U.S. economy. A survey from the University of Michigan indicated declining consumer sentiment for the second consecutive month in September. The survey also revealed that Americans expect inflation to average 3.1% in the next year, down from the previous month’s projection of 3.5% and marking the lowest reading in two and a half years. Furthermore, rising Treasury yields weighed on U.S. equities in recent weeks, with the information technology sector experiencing a significant 2% decline, according to FactSet data. In terms of the weekly performance, the S&P 500 remained relatively steady, with only a minor 0.2% decrease. With the majority of companies having already reported their second-quarter earnings, the market lacked significant catalysts during the week. Randy Frederick, Managing Director of Trading and Derivatives at Charles Schwab, noted that the U.S. economy continued to demonstrate stability, contributing to the current sideways market movement. Notable Company Movements:

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