Wall St posts third straight quarterly loss as inflation weighs, recession looms

By Stephen Culp

NEW YORK (Reuters) – The S&P 500 closed the books on its steepest September decline in two decades on Friday, skidding across the finish line of a tumultuous quarter fraught with historically hot inflation, rising interest rates and recession fears.

All three major indexes veered to a sharply lower end, having quashed a brief rally early in the session.

The S&P and the Dow notched their third consecutive weekly declines, and all three indexes posted their second straight monthly losses.

In the first nine months of 2022, Wall Street suffered three quarterly declines in a row, the longest losing streak for the S&P and the Nasdaq since 2008 and the Dow’s longest quarterly slump in seven years.

“It’s another ugly day to end an ugly quarter in what’s looking like a very ugly year,” said Ryan Detrick, chief market strategist at Carson Group in Omaha, Nebraska. “Investors will look back and realize this was the year the Fed pulled a total 180 on their views on inflation and quickly turned incredibly hawkish.”

The Federal Reserve has rattled markets by engaging in its most relentless series of interest rate hikes in decades in order to rein in stubbornly high inflation, which has many market participants eyeing key economic data for signs of a looming recession.

“The realization that the Fed is doing anything they can to combat 40-year-high inflation has investors worried they will push the economy over the edge and into recession,” Detrick added.

The Commerce Department’s personal consumption expenditures (PCE) report did little to assuage those fears, showing that while consumers continue to spend, the prices they are paying have accelerated, drifting further beyond the Fed’s inflation target and all but ensuring the central bank’s hawkish monetary policy will continue longer than investors had hoped.

Recession fears also echoed through dire warnings from Nike Inc and cruise operator Carnival Corp, both citing inflation-related margin pressures.

Shares of the companies tanked by 12.8% and 23.3%, respectively.

The Dow Jones Industrial Average fell 500.1 points, or 1.71%, to 28,725.51; the S&P 500 lost 54.85 points, or 1.51%, to 3,585.62; and the Nasdaq Composite dropped 161.89 points, or 1.51%, to 10,575.62.

Among the 11 major sectors of the S&P 500, real estate was the sole gainer, while utilities tech suffered the largest percentage losses.

Apple Inc, Microsoft Corp, Amazon.com and Nike weighed heaviest.

Corporate earnings reports for the quarter that ends with Friday’s closing bell will begin landing in a few weeks, and analyst expectations are trending downward.

Analysts now see annual S&P 500 earnings growth of 4.5%, on aggregate, down from the 11.1% estimate when the quarter began.

Quarter-end fund reallocations and so-called “window dressing” is likely contributed to the session’s volatility.

Declining issues outnumbered advancing ones on the NYSE by a 1.45-to-1 ratio; on Nasdaq, a 1.38-to-1 ratio favored decliners.

The S&P 500 posted no new 52-week highs and 93 new lows; the Nasdaq Composite recorded 27 new highs and 380 new lows.

Volume on U.S. exchanges was 12.44 billion shares, compared with the 11.45 billion average over the last 20 trading days.

(Reporting by Stephen Culp; Additional reporting by Ankika Biswas and Shreyashi Sanyal in Bengaluru; Editing by Jonathan Oatis)

Worries About Earnings Growth Potential and Financial Market Dysfunctions Lead the Market

Bulls continue to face strong headwinds amid worries about earnings growth potential and financial market dysfunctions.

Apple Selloff

Investors seemed particularly caught off guard by a rare downgrade to Apple‘s stock by Bank of America following reports of low iPhone demand. The resulting selloff left the stock down almost -5% and wiped roughly -$120 from Apple’s market cap. Apple is of course America’s most valuable publicly traded company, which means it is the most heavily weighted stock in the S&P 500, accounting for over 7% of the index’s total market value.

Naturally, a big selloff in Apple is going to drag on the broader market. BofA’s downgrade also highlighted bigger concerns that are likely to weigh on other companies’ profitability in the quarters ahead, most notably slower business and consumer spending, and a stronger US dollar.

Bears are quick to point out that early earnings results are already revealing weaker-than-expected Q3 results. Nike‘s results unveiled ongoing supply chain problems as well as lingering excess inventories and currency headwinds. CarMax yesterday was the latest in a long list of companies warning of increasing “affordability challenges” for consumers amid the highest inflation levels in some four decades and rising borrowing costs.

Declining affordability was a key reason behind Moody’s downgrade yesterday of the entire global automotive industry from “stable” to “negative”. The auto industry, similar to Apple, Nike, and most other companies, is also struggling with ballooning costs related to raw material shortages, tight labor markets, and skyrocketing energy prices.

Bottom line, the outlook for earnings in upcoming quarters is fading, making it tough for investors to justify pushing prices any higher at this point. Like I’ve mentioned many times, an earnings recession could actually be worse for the stock market than an actual full-blown economic recession.

Is the Financial System at Risk?

Wall Street also remains nervous about contagion spreading from bond and currency market dysfunctions in the UK, Italy, Japan, China and others.

While every country has unique problems that are partially responsible for recent volatility, it also partially stems from the aggressive monetary tightening being conducted by most Western central banks.

In general, a rising rate environment tends to uncover imbalances and systematic risks that might be unknowingly lurking in financial systems. Just think back to the subprime mortgage crisis and Lehman Brothers collapse in 2008 that eventually erupted into a full-blown global financial meltdown.

Some contend it began when the Fed started lifting rates from 2004 to 2006, going from 1% to 5.25%, which led to an extreme slowdown in the housing market and ballooned the payments on subprime mortgages into unaffordable territory…and the contagion just spread from there.

So when financial markets start acting strangely and central banks are making emergency interventions, investors can be understandably nervous that an even bigger problem might be around the next corner.

On the geopolitical front, Russia is expected to formally annex four Ukraine regions in a ceremony today that’s supposed to include an address from President Vladimir Putin. Some think Putin may offer to enter a ceasefire with Ukraine. While Ukraine is unlikely to agree, they could face pressure from western countries that are worried about the threat of a wider conflict with Russia.

Data to Watch

Looking ahead to next week, the main highlight will be the September Employment Situation due out next Friday. There is a slew of other key data due as well, including ISM Manufacturing and Construction Spending on Monday; Factory Orders and the Job Openings and Labor Turnover Survey (JOLTS) on Tuesday; ADP’s private payroll report, the US Trade Balance, and ISM Non-Manufacturing on Wednesday; and Wholesale Inventories and Consumer Credit on Friday. The only earnings of note next week are Conagra Brands and McCormick & Co. on

Hurricane Ian Spells Trouble for the Fed and Its Inflation Goals

Today, the US State of Florida woke up to the devastation of Hurricane Ian. As residents of the worst-hit parts make the journey home, residents and businesses will begin to assess the financial impact of a storm that peaked at a category four before heading back out to sea.

With parts of the State of Florida still under water and facing high winds and heavy rain, news media outlets report that more than two and a half million are without electricity.

President Joe Biden declared a major disaster, releasing federal-level disaster relief funds to help the State tackle the destruction.

While businesses in the path of Hurricane Ian will face the battle of rebuilding, there will be the indirect effects of the storm on some of the country’s largest multinationals.

Supply Chain Disruption, Fuel Prices, and Inflation

One immediate effect of Hurricane Ian will be on supply chains in and out of Florida.

Across the State, fuel terminals are closed, with oil companies evacuating employees ahead of the storm’s arrival. As reported by Reuters, BP Plc (BP), Chevron Corp (CVX), Occidental Petroleum Corp. (OXY), and Hess Corp (HES) shut down operations in the State.

In the aftermath of the storm, infrastructure is an issue. Reportedly, fuel trucks can’t reach affected parts of the State, with lengthy waiting times likely to impact businesses reliant upon diesel-fueled generators. Shortage concerns were significant enough for the White House to issue a warning to Oil Companies. President Biden reportedly said,

“Do not – let me repeat, do not, do not – use this as an excuse to raise gasoline prices in America.”

According to the US Joint Economic Committee, gasoline prices surged by 46 cents a gallon immediately after Katrina. The JEC noted that ‘some consumers paid almost twice what they paid the year before.’ Higher gasoline prices would spell more trouble for the US economy and the FED grappling with inflation.

Elevated prices would extend beyond the pump, with businesses having to pass on running costs to consumers. The JEC report noted that ‘fuel prices increased quickly after the supply disruption. However, the JEC also observed that prices decreased more slowly after capacity was restored.’

One other area of interest is the Sunshine State’s citrus industry. According to a CNN report, Ian threatened 75% of the citrus belt with heavy rain and floods. With citrus production reportedly under pressure ahead of the storm, supply shortages would lead to higher food prices, another headache for consumers and for the Fed.

Retailers and the Services Sector Likely to Bear the Brunt of the Pain

Reuters reported that Amazon.com (AMZN) paused operations in some sites, with Walmart (WMT) and Sam Clubs closing down more than 100 stores. Walt Disney (DIS) also shut down theme and water parks on Wednesday and Thursday.

With food and fuel prices keeping US inflation at four-decade highs, retailers will likely add to the inflation problem. As water levels decline, supply issues, and strong demand, will drive prices higher.

While the global equity markets may not have reacted to news updates from the State of Florida, the impact may be evident in the months ahead. Florida is among the top five US states by GDP, with a GDP equivalent to Mexico.

US Equity Markets Tumble as Inflation and Economic Woes Hit Sentiment

At the time of writing, the Dow and the S&P 500 were down 1.64% and 1.88%, respectively, with the NASDAQ 100 sliding by 3.01%.

Amazon.com was down 3.34%, with Disney and Walmart seeing losses of 1.73% and 0.50%, respectively. Oil companies were also in the red, with Chevron down 1.41% and BP PLC falling by 1.28%.

UPDATE: Is the Worst Really Over for US Stocks?

Last month, we posed the question: “Is the worst over for US stocks?”

Answer: apparently not.

A week after that August 10th article, the S&P 500 did climb higher, only to be resisted by its 200-day simple moving average.

The blue-chip stock index even closed above the 50% Fibonacci retracement level, which was the key criteria for suggesting that the worst is over for the 2022 rout in US stocks.

As cited in the August article, according to data by the CFRA and S&P Global, in 18 of the 19 ‘bear markets’ seen since World War II, the S&P 500 then went on to a fresh bull run after closing above its 50% Fib retracement line.

But as the saying goes across financial markets “Past performance is no guarantee of future results.”

And that track record (stated above) now needs to be updated to “18 out of the past 20 bear markets …”.

Since that August article, the S&P 500 has unwound all of its summer gains, even printing intraday prices not seen since end-November 2020.

In essence, we have seen “worse” levels this week for the S&P 500 compared to those June lows.

Why Did the S&P 500 Erase Its Summer Gains?

Recall the premise for the S&P 500’s summer rally, as stated in last month’s article:

“Arguably, the primary reason is that markets believe that the Fed has done the largest chunks of its rate hikes already.”

Additionally, the S&P 500’s summer gains was based on the idea of a “dovish pivot” by the Fed.

That’s to say that markets had expected the Fed to be less courageous about sending US interest rates higher, for fear of triggering an economic recession.

But now we know better.

Since then, we have seen the US inflation data stubbornly printing near its highest levels in around 40 years.

Hence, many Fed officials, including Fed Chair Jerome Powell himself, have since sent a strong message to the markets:

The US central bank is hell bent on taming multi-decade high inflation by sending US interest rates even higher, and is willing to tolerate economic pain along the way.

Markets duly paid heed and raised their forecasted peak for this ongoing Fed rate hike cycle by about 90 basis points!

  • Back in August, markets expected that US rates won’t go higher than 3.6% in March 2023.
  • Today, that forecasted peak is now expected to reach nearly 4.5% by March.

What Do Higher Us Interest Rates Mean for the Us Economy?

Essentially, the Fed wants to see some “demand destruction”.

Policymakers want to see less money in an economy chasing after scarce goods and services.

That should, in theory, discourage businesses from ramping up their selling prices, hopefully resulting in slower inflation.

However, more economic pain could also bring about a shrinking economy i.e. a recession.

What Do Higher US Interest Rates Mean for the US Economy?

More downside likely.

With the US unemployment rate forecasted by the Fed to rise to 4.4% by end-2023, significantly higher from the 3.7% figure from last month, more jobless Americans should translate into less demand/spending in the US economy, which should also mean less earnings for companies.

Lower earnings due to such “economic pain” should also lead to lower share prices, with such a narrative already dragging on the S&P 500.

Tech Not Spared

Also, higher interest rates mean its tougher for so-called “growth companies” to continue borrowing cheap loans to fund its expansion plans while forsaking profitability.

Hence, as higher interest rates chock some of the potential growth (and earnings potential) for these growth companies, that has led to lower stock valuations as well.

Keep in mind that, with many of these growth stocks concentrated in the tech sector, no surprise then that the tech-heavy Nasdaq 100 has a year-to-date decline of almost 30%, falling deeper than the S&P 500’s 22% year-to-date decline.

However, the Nasdaq 100 is still managing to not surpass its June lows … for now.

Also, note that tech-led declines would only exert more downward pressure on the S&P 500.

This is because IT stocks (think Apple, Microsoft, Nvidia, etc.) account for over a quarter (26.6%) of the S&P 500.

So, if you couple the S&P 500’s exposure to tech stocks with the weightage of consumer discretionary stocks (e.g. Amazon, Tesla, McDonald’s, etc. – which tend to take an earnings hit when customers have less disposable income during times of economic pain), then a US recession that’s triggered by higher US rates would only exert more downward pressure on the S&P 500.

NOTE: The S&P 500 index is widely used as the benchmark to gauge how overall US stocks are performing.

So What’s Next for the S&P 500?

Brace for the low-3000s.

In market fears surrounding a US recession continue ramping up, that may send the S&P 500 to as low as:

  • 3400: around the pre-pandemic peak set in Feb 2020
  • 3200: double-bottom from Sept/Oct 2020

Though for more immediate consideration, the S&P 500 is testing a crucial support level – its 200-week simple moving average.

This technical indicator has supported the S&P 500 in recent years, with such an episode last occurring at end-2018.

Athough the Fed was also busy raising interest rates back in 2018, those benchmark rates today have already surpassed those levels and are now standing at its highest since 2008 at 3.25%.

And US inflation is still around its highest levels since the early 1980s.

So if this 200-week SMA doesn’t hold, the S&P 500 is likely to then set course for the low-3000 region, dragged down by heightened  fears over a potential US recession and higher-for-longer US interest rates.

For more information visit FXTM.

BoE is in The Game. Will Fed Follow?

The intervention in Britain came after a central bank committee warned of the risks to financial stability from disruption in the government bond market.

What Happened in UK?

The biggest problems stem from a sharp rise in bond yields that has created massive margin calls for big investment firms, including pension funds.

That led to a lot of funds trying to sell bonds in order to raise cash and risked sparking a downward spiral. The Bank of England is now a buyer of bonds at “whatever scale necessary” and is delaying the start of its quantitative tightening (QT) program – aka its plan to unwind its securities holdings.

The lack of liquidity in Britain’s bond markets highlights a similar issue that some fear we could see happening in other parts of the world. This means that central banks might not be able to be as hawkish as some bears have been thinking.

Will Fed Follow BoE?

Keep in mind, in the USA the US Federal Reserve continues to hike rates at a historically fast clip while also working to reduce its balance sheet.

The Fed is now allowing its holdings of Treasury securities to drop by up to -$30 billion per month by letting them mature without replacement, and its mortgage-backed securities (MBS) to drop by up to -$17.5 billion a month.

The program has already dramatically reduced liquidity in US Treasury markets and some worry things could get dangerously volatile as “Quantitative Tightening” (QT) continues to drain money from the system.

Keep in mind, government debt markets across the world are experiencing extreme degrees of volatility right now, meaning bears believe there’s a heightened risk that something could break and possibly spark a wider crisis across global financial markets.

On the flip side, as I mentioned above, bulls believe the risks of extreme volatility and illiquidity in US bond markets could prompt the Fed to pause some of its tightening plans sooner than currently anticipated.

The Fed did reverse course on its asset reductions during its first and only attempt at QT back in 2019.

Several Fed officials have noted that the Fed’s aggressive pace of tightening does pose some risks, including recession, but most right now believe “inflation” is the bigger threat to both economic and market stability.

Data to Watch

Investors get an update on inflation on Friday from the PCE Prices Index. Wall Street expects the year-over-year headline rate to fall again for August but the “core” rate, which strips out food and energy prices, is expected to climb from +4.6% to +4.8%.

Today, the final read of Q3 Gross Domestic Product (GDP) is the data highlight. On the earnings front, Bed Bath & Beyond, CarMax, Carnival, Micron, and Nike results are due today, which we mistakenly had slated for yesterday…sorry for any confusion.

Turning to geopolitical headlines, the US yesterday joined most other governments around the world in condemning Russia’s moves to take over separatist-backed regions of eastern Ukraine after holding what the White House called “illegal and illegitimate” referendums. Officials say the vote was orchestrated by the Kremlin and could represent a major escalation of the war if Russia tries to claim that Ukraine is attacking what is now Russian territory. At least that is the theory.

Ukraine is asking for significantly more military support from the US and other NATO allies and there is talk of more US and EU sanctions against Russia as well.

Who would have ever guessed a year ago we would be sitting here today with the US dollar at twenty year highs, the 30-year mortgage up at 7%, money in a 2-Year Treasury earning +4%, inflation at multi-decade highs, and Russia in a full blown war trying to take over Ukraine.

The GBP/USD Is Back in the Red After the BoE Fueled Wednesday Rally

On Wednesday, the Bank of England stepped in to calm the markets and restore confidence in the Pound.

Tagged the ‘Gilt Market Operations,’ the BoE released details of the Bank’s purchases of longer-dated UK government bonds.

According to the announcement,

“The Bank will carry out purchases of long-dated gilts in a temporary and targeted way. The purpose of these purchases is to restore orderly market conditions.”

The Bank added,

“Given current market conditions, the Bank stands ready to purchase conventional gilts with a residual maturity of more than 20 years in the secondary market, initially at a rate of up to £5 billion per auction. These parameters will be kept under review in light of prevailing market conditions.”

The first auction took place on Wednesday, and subsequent auctions will happen daily until October 14, 2022.

Market Reaction to the BoE Intervention Was Ultimately Bullish

On Wednesday, the GBP/USD pair rallied by 1.45% to end the session at $1.08879. The Pound had tumbled to a low of $1.05381 before surging to a day high of $1.09160. However, this morning, the GBP/USD pair was on the back foot early in the Asian session, falling by 0.33% to $1.08520.

GBP/USD under pressure after Wednesday relief rally.
290922 GBPUSD Daily Chart

While the purchase of longer-dated gilts delivered order, market concerns over the UK Government’s mini-budget and the implications to inflation and monetary policy remain. On Tuesday, BoE Chief Economist Huw Pill said that the BoE would wait until the November MPC meeting to deliver a policy response to the mini-budget.

However, market disorder forced the Bank into action.

Beyond the Pound, market reaction to the Bank of England intervention was evident across the asset classes.

On Wednesday, the NASDAQ 100 rallied by 2.05%, with the Dow and the S&P500 ending the day with gains of 1.88% and 1.97%, respectively. The US futures had been in negative territory through the European session before the market response to the BoE move.

The European markets also bounced back from heavy losses, with the DAX30 rising by 0.36% and the FTSE100 ending the day up 0.30%. However, the gains were modest, with recession jitters and hawkish Fed chatter pegging the majors back on the day.

Elsewhere, the crypto market recoupled with the US equity markets. The crypto market had briefly decoupled in response to the Fed’s rate hike and FOMC projections.

Crypto - NASDAQ correlation
Total Market Cap – NASDAQ – 290922 5 Minute Chart

Recovering from an early morning slide to a Wednesday low of $865.4 billion, the crypto market cap is currently up $14.1 billion to $910.0 billion.

Early in the Wednesday session, news of Apple Inc. (AAPL) pulling plans to ramp up production of the new iPhone 14 product suite had sent riskier assets into the deep red.

Looking at the Asian markets this morning, the risk-on sentiment from the US session has failed to provide support. At the time of writing, the ASX200 was down 0.53%, with the NASDAQ 100 Mini down 16 points.

The Bank of England will need to do more to restore confidence in the Pound. Hawkish central bank chatter will also remain a headwind for riskier assets. Warnings from the likes of Apple Inc of weakening demand will continue to add to the market angst.

Wall Street ends sharply higher as Treasury yields dip

By Noel Randewich and Shreyashi Sanyal

(Reuters) – Wall Street ended sharply higher on Wednesday following its recent sell-off, helped by falling Treasury yields, while Apple dropped on concerns about demand for iPhones.

The S&P 500 recorded its first gain in seven sessions after closing on Tuesday at its lowest since late 2020.

Interest rate-sensitive megacaps Microsoft, Amazon and Meta Platforms rallied as the yield on 10-year Treasury notes fell over 0.26 percentage point in its biggest one-day drop since 2009.

Pushing yields lower on Treasuries with maturities six months and longer, the Bank of England said it would buy long-dated British bonds in a move aimed at restoring financial stability in markets rocked globally by the fiscal policy of the new government in London.

“The yield on the two-year Treasury has gone up persistently over the course of the last several weeks, and for the first time we’ve seen it go down for two days in a row, and that has given equities a breather,” said Art Hogan, chief market strategist at B. Riley Wealth.

Investors have been keenly listening to comments from Federal Reserve officials about the path of monetary policy, with Atlanta Fed President Raphael Bostic on Wednesday backing another 75-basis-point interest rate hike in November.

The Fed will likely get borrowing costs to where they need to be by early next year, Federal Reserve Bank of Chicago President Charles Evans said.

U.S. stocks have been battered in 2022 by worries that an aggressive push by the Fed to raise borrowing costs could throw the economy into a downturn.

Apple Inc dropped 1.3% after Bloomberg reported the company is dropping plans to increase production of its new iPhones this year after an anticipated surge in demand failed to materialize.

Apple has been a relative outperformer in 2022’s stock market sell-off, down about 15% in the year to date, versus the S&P 500’s 22% loss.

All of the 11 S&P 500 sector indexes rose, led by a 4.4% jump in energy and a 3.2% leap in communication services.

 

Every S&P 500 stock’s performance in September https://fingfx.thomsonreuters.com/gfx/mkt/lbpgnqgdkvq/Pasted%20image%201664388610426.png

 

The Dow Jones Industrial Average rose 1.88% to end at 29,683.74 points, while the S&P 500 gained 1.97% to 3,719.04. It was the S&P 500’s largest one-day gain since Aug. 10.

The Nasdaq Composite jumped 2.05% to 11,051.64.

Biogen Inc surged 40% after saying its experimental Alzheimer’s drug, developed with Japanese partner Eisai Co Ltd, succeeded in slowing cognitive decline.

Eli Lilly & Co, which is also developing an Alzheimer’s drug, jumped 7.5%, and it was among the biggest boosts to the S&P 500 index.

Advancing issues outnumbered declining ones on the NYSE by a 5.82-to-1 ratio; on Nasdaq, a 3.66-to-1 ratio favored advancers.

The S&P 500 posted one new 52-week high and 30 new lows; the Nasdaq Composite recorded 26 new highs and 224 new lows.

Volume on U.S. exchanges was 11.7 billion shares, compared with an 11.4 billion average for the full session over the last 20 trading days.

 

(Reporting by Noel Randewich in San Francisco and Shreyashi Sanyal, Susan Mathew and Ankika Biswas in Bengaluru; Editing by Vinay Dwivedi, Arun Koyyur and Jonathan Oatis)

Did Wall Street Reach “peak bearishness”?

Fed’s Tightening Campaign

Most are citing concerns of a recession due to the Federal Reserve’s aggressive tightening campaign. Fed officials this week have continued to acknowledge that some pain likely lies ahead for the US economy and job market as the central bank continues its campaign to beat back inflation.

Investors seem inclined to believe the tough talk at the moment, particularly as inflation has shown few signs of fading.

One big problem is that the areas where pressure does appear to be coming off are still highly elevated. Home prices for instance are still up nearly +16% year-over-year while energy prices remain nearly +24% higher than what consumers were paying last year.

Meaning there is still a long way to go before inflation is back down to the Fed’s target rate of around +2%. Until there are more widespread and consistent signs of declining inflation, it will be hard for economists and investors alike to forecast how long that might take.

Likewise, it makes trying to guess how high and for how long the Fed will continue lifting rates extremely difficult. In turn, the high degree of uncertainty over where the Fed’s rate hikes might end means investors are lacking a key piece of the puzzle when it comes to stock valuations.

If we end up over +4.5% or even +5% like some are predicting, bears argue that stock prices need to fall even further.

History Repeats?

The S&P 500‘s average peak-to-trough decline during past bear markets is about -36%, taking an average of around 10 months to hit bottom. The S&P 500 yesterday sunk to a new 2022 low and is now down just over -24% from its most recent peak in January.

Some on Wall Street that have been looking to history for clues as to where markets might go from here are pointing to the bear market of 1973 to 1974. It was second-longest bear market since 1928, lasting about 21 months, and similarly coincided with a period of high inflation and slowing economic growth, as well as extreme energy market volatility.

Since the 1950s, the longest bear market was in the early 2000s, when the dot com bubble burst. It lasted about 25 months.

Data to Watch

Today, investors will be digesting Pending Home Sales and advance reads on Retail Sales, International Trade, and Wholesale Inventories.

It’s worth noting that data yesterday showed Consumer Sentiment ticked up nearly 5 points this month. The gauge is considered a leading indicator of consumer spending.

Consumer spending is the single-largest driver of the US economy, so if that’s not slowing down, inflation is not likely going to either. Today also brings several key earnings with Bed Bath & Beyond, CarMax, Carnival, Micron, and Nike the main highlights.

Apple Inc. Joins Growing List Responding to Economic Conditions

Overnight, US tech giant and multinational Apple Inc. (AAPL) announced that it would drop plans to increase the production of its new iPhone 14 product suite.

Bloomberg reported that an expected surge in demand failed to materialize, forcing the company to notify suppliers to curtail efforts to increase assembly line output. Apple planned to increase production of the new iPhone 14 product suite by as much as 6 million units in the second half of this year.

Today’s news followed reports of Apple Inc. shifting some iPhone 14 production from China to India. According to Reuters, the shift from China was in response to rising geopolitical tensions and COVID-19 lockdown measures in China that continue to impact output.

The market reaction to the news was bearish. Ahead of the Bloomberg report, the NASDAQ 100 Mini was in positive territory. However, at the time of writing, the NASDAQ 100 Mini was down 142.25 points, with the Dow Jones Mini down 190 points. For the S&P 500, another bearish session would extend the losing streak to seven sessions.

Pre-market, Apple Inc was down 3.70%.

The European markets also responded adversely to the news. Early in the European session, the DAX30 was down 1.60%, with the CAC40 and the EuroStoxx600 down 1.24% and 1.43%, respectively.

Beyond the global equity markets, the crypto market reacted negatively to the news. This morning the crypto market cap was down $17 billion to $878.4 billion. Before the Apple news hit the wires, the crypto market cap had struck an early high of $902.2 billion.

Crypto market reacts to Apple Inc news.
Crypto Market Cap 280922 Daily Chart

Apple Joins Growing List of Multinationals to Sound the Alarm Bells

This morning’s news was one of several as US multinational companies respond to a marked shift in the economic environment. Economic indicators continue to flash red as central banks attempt to tame inflation.

Rising interest rates and persistent inflation amidst a weakening economic outlook have weighed on demand expectations.

In July, Walmart (WMT) spooked the global financial markets with a grim outlook for the quarter and the fullyear. However, shortly after the WMT warning, Apple Inc. and Amazon.com (AMZN) released earnings results and delivered positive outlooks, which were in stark contrast to that of Walmart.

Conditions have deteriorated rapidly since July, with Gap Inc. (GPS) pulling its full-year outlook in August, citing macroeconomic uncertainty as the company searched for a new CEO.

Earlier this month, FedEx (FDX) withdrew its earnings forecasts, citing deteriorating market conditions. FedEx shares tumbled by 21.44% in response to the announcement.

As the list grows longer, market angst will likely build as investors prepare for the earnings season, which kicks off next month.

DOGE and SHIB Hit Reverse as Apple Inc. Sends a Recession Warning

Key Insights:

  • Dogecoin (DOGE) and shiba inu coin (SHIB) joined the broader crypto market in negative territory this morning.
  • Network updates and crypto news took a back seat. News of Apple (AAPL) cutting back production of the new iPhone hit riskier assets.
  • The technical indicators are bearish, with DOGE and SHIB sitting below their 50-day EMAs, signaling a visit to the September lows.

On Tuesday, dogecoin (DOGE) fell by 1.02%. Following a 0.07% loss on Monday, DOGE ended the day at $0.060493. DOGE extended its current losing streak to four sessions.

A bullish start to the day saw DOGE strike a mid-morning high of $0.06307 before hitting reverse. DOGE broke through the First Major Resistance Level (R1) at $0.0621 to test the Second Major Resistance Level (R2) at $0.0630.

The reversal saw SOGE slide through the First Major Support Level at $0.0600 to a low of $0.05975 before a partial recovery to $0.06049.

Shiba Inu Coin (SHIB) bucked the broader market trend, ending the day flat. Following a 0.91% gain on Monday, SHIB ended the day at $0.00001112.

Tracking the broader market, SHIB rose to an early high of $0.00001155. SHIB broke through the First Major Resistance Level (R1) at $0.0000113 to test the Second Major Resistance Level (R2) at $0.0000115. The reversal saw SHIB slide to a low of $0.00001084.

However, finding support at the First Major Support Level (S1) at $0.0000109, SHIB ended the day at $0.0000112.

On Tuesday, bullish sentiment across the crypto market was short-lived, with US economic indicators weighing on riskier assets. A sharp rise in US consumer confidence, fueled by labor market conditions and wage growth, sent the Dow and the S&P500 into the red, with the crypto market in tow.

This morning, news of Apple Inc. (AAPL) cutting production of the new iPhone sent riskier assets into the red. Apple is the latest in a line of US multinationals reacting to economic conditions and preparing for a sharp decline in demand.

Dogecoin (DOGE) Price Action

At the time of writing, DOGE was down 1.55% to $0.05956. A mixed start to the day saw DOGE rise to an early high of $0.06097 before falling to a low of $0.05850.

DOGE fell through the First Major Support Level (S1) at $0.0591 before finding support.

DOGE under pressure.
DOGEUSD 280922 Daily Chart

Technical Indicators

DOGE needs to move through the $0.0611 pivot to target the First Major Resistance Level (R1) at $0.0625 and the Tuesday high of $0.06307. A marked shift in risk sentiment will be needed to support a return to $0.0620.

In the case of an extended crypto market rebound, DOGE should test the Second Major Resistance Level (R2) at $0.0644 before any pullback. The Third Major Resistance Level (R3) sits at $0.0677.

Failure to move through the pivot would leave the First Major Support Level (S1) at $0.0591 in play. However, barring another extended sell-off, DOGE should avoid sub-$0.0585 and the Second Major Support Level (S2) at $0.0578. The Third Major Support Level (S3) sits at $0.0545.

DOGE support levels in play below the pivot.
DOGEUSD 280922 Hourly Chart

The EMAs sent a bearish signal, with DOGE sitting below the 50-day EMA, currently at $0.06120. Today, the 50-day EMA fell back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA, delivering bearish signals.

The failed bullish cross of the 50-day EMA through the 100-day EMA and DOGE slide through the 50-day EMA brings Sub-$0.590 into play. However, a move through the 50-day ($0.06120) and 100-day ($0.06133) EMAs would give the bulls a run at R1 ($0.625) and the 200-day EMA ($0.06260).

EMAs bearish.
DOGEUSD 280922 4 Hourly Chart

Shiba Inu Coin (SHIB) Price Action

At the time of writing, SHIB was down 1.62% to $0.00001094.

A choppy start to the day saw SHIB rise to an early high of $0.00001130 before sliding to a low of $0.00001072.

SHIB fell through the First Major Support Level (S1) at $0.0000108 before a return to $0.0000109.

SHIB under pressure.
SHIBUSD 280922 Daily Chart

Technical Indicators

SHIB needs to move through the $0.0000112 pivot to target the Firsts Major Resistance Level (R1) at $0.0000115 and the Tuesday high of $0.00001155. A marked shift in risk sentiment would be needed to support a breakout from the morning high of $0.00001130.

In the case of a broad-based crypto rebound, SHIB would likely test the Second Major Resistance Level (R2) at $0.0000119 and resistance at $0.0000120 before easing back. The Third Major Resistance Level (R3) at $0.0000126.

Failure to move through the pivot would leave the First Major Support Level (S1) at $0.0000108 in play. Barring an extended sell-off, SHIB should avoid sub-$0.0000105. The Second Major Support Level (S2) at $0.0000105 would likely limit the downside.

The Third Major Support Level (S3) sits at $0.0000098.

SHIB support levels in play.
SHIBUSD 280922 Hourly Chart

The EMAs send a bearish signal, with SHIB sitting below the 50-day EMA, currently at $0.00001118. This morning, the 50-day EMA slipped back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA. The signals were bearish.

A move through 50-day EMA ($0.00001118) would give the bulls a run at the 100-day EMA ($0.00001144) and R1 ($0.0000115). The 200-day EMA sits at $0.00001182. However, failure to move through the 50-day EMA ($0.00001118) would leave the support levels in play.

EMAs bearish.
SHIBUSD 280922 4 Hourly Chart

Bitcoin Fear & Greed Index Holds Steady Despite a Bearish BTC Session

Key Insights:

  • On Tuesday, bitcoin (BTC) visited $20,000 for the first time in nine sessions before ending the day in the red.
  • Market reaction to US consumer confidence figures sent the S&P500 and the Dow into the red, with risk aversion weighing on BTC.
  • However, the Bitcoin Fear & Greed Index held steady at 20/100.

On Tuesday, bitcoin (BTC) fell by 0.72%. Partially reversing a 2.22% gain from Monday, BTC ended the day at $19,097. Significantly, BTC visited $20,000 for the first time in nine sessions and ended the day at $19,000 for the second time in four sessions.

A bullish morning saw BTC strike a mid-day high of $20,385. BTC broke through the First Major Resistance Level (R1) at $19,481 and the Second Major Resistance Level (R2) at $19,726. Coming up against the Third Major Resistance Level (R3) at $20,365, BTC tumbled to a late low of $18,838.

However, finding support at the First Major Support Level (S1) at $18,842, BTC ended the day at $19,097.

While it was a quiet session on the crypto news wires, market sentiment toward global financial market conditions delivered morning support. A slump in the GBP/USD and other FX pairings with the dollar supported demand for alternative asset classes. Cryptos drew plenty of interest with equities in bearish territory and the bond markets also suffering.

However, US economic indicators weighed on investor appetite through the afternoon session.

US economic indicators likely contributed to the afternoon sell-off. In September, the CB Consumer Confidence Index increased from 103.6 to 108.0. Confidence improved despite the current inflation environment, the Fed’s policy goals, mortgage rates, and the economic outlook.

The consumer confidence figures support the Fed’s policy goals, which likely contributed to the risk-off session. Jobs and wages were the driving force behind the pickup in consumer confidence.

On Tuesday, the S&P500 and the Dow fell by 0.21% and 0.43%, respectively, while the NASDAQ 100 rose by 0.25%. This morning, the NASDAQ 100 Mini was down 69.25 points.

NASDAQ correlation
NASDAQ – BTCUSD 280922 5 Minute Chart

Bitcoin Fear & Greed Index Continues to Avoid Sub-20/100

Today, the Fear & Greed Index held steady at 20/100. The hold came despite BTC sliding back to sub-$19,000 in a choppy session.

Investor angst over the Fed and the economic outlook resurfaced and likely offset a pickup in optimism seen through the morning session. However, the Index continued to avoid sub-20, reflecting investor resilience.

In recent weeks, avoiding sub-20/100 has been the key. The bears will be eying a fall to sub-20/100 to signal a BTC slide to sub-$18,000. By contrast, the bulls will look for an Index return to 40/100 to support a move toward $25,000.

Index avoids sub-20/100 again.
Fear & Greed 280922

Bitcoin (BTC) Price Action

At the time of writing, BTC was down 0.54% to $18,993. A mixed start to the day saw BTC rise to an early high of $19,245 before falling to a low of $18,958.

BTC under early pressure.
BTCUSD 280922 Daily Chart

Technical Indicators

BTC needs to move through the $19,440 pivot to target the First Major Resistance Level (R1) at $20,042. A BTC move through $19,500 would support a bullish session.

In the case of another extended rally, BTC should test the Second Major Resistance Level (R2) at $20,987 and resistance at $21,000. The Third Major Resistance Level (R3) sits at $22,534.

Failure to move through the pivot would leave the First Major Support Level (S1) at $18,495 in play. Barring an extended sell-off, BTC should avoid sub-$18,000 and the Second Major Support Level (S2) at $17,893. Fed Chair Powell could test investor appetite later today.

The Third Major Support Level (S3) sits at $16,346.

BTC support levels in play below the pivot.
BTCUSD 280922 Hourly Chart

Looking at the EMAs and the 4-hourly candlestick chart (below), it was a bearish signal. This morning, bitcoin sat below the 50-day EMA, currently at $19,322.

The 50-day EMA pulled back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA, delivering bearish price signals.

A move through the 50-day and 100-day ($19,582) EMAs would give the bulls a run at R1 ($20,042) and the 200-day EMA ($20,124). However, Tuesday’s slide through the 50-day EMA suggests a bearish session ahead.

EMAs bearish.
BTCUSD 280922 4 Hourly Chart

S&P 500 renews slide, hits near two-year low

NEW YORK (Reuters) – The S&P 500 fell to its lowest level in almost two years on Tuesday on worries about super aggressive Federal Reserve policy tightening, trading under its old 2022 low from June and leaving investors appraising how much further stocks would have to fall before stabilizing.

After the benchmark index fell more than 20% from its early January high to a low on June 16, which confirmed that the retreat was indeed a bear market, the S&P then rallied into mid-August before running out of gas.

That bear-market rally is now over.

[.N]

MARKET REACTION: STOCKS: The S&P 500 lost 10.94 points, or 0.30%, to stand at 3,644.1, just above the old low at 3,636.87. The Dow Jones Industrial Average fell 138.43 points, or 0.47%, to 29,122.38

COMMENTS:

CHRISTIAN LEDOUX, DIRECTOR OF INVESTMENTS, CAPTRUST, TEXAS

“Investors are stuck in a period of uncertainty where we won’t be hearing from the Fed again until November and Fed policy is the primary weight on the stock market. Even if the inflation data gets better with the next report in mid-October, we won’t know how the Fed will react to it. The recent comments from the Fed has been unilateral in its commitment to stay the course, investors may doubt that even a meaningful improvement in inflation would result in the Fed pausing its tightening cycle.

“Many strategists we follow believe a recession would bring S&P earnings per share to $190-$200 (from the current run rate of about $225). Back-of-the-napkin math with a 10-year treasury yield of around 3.5% (potentially dropping below 3% in a recessionary environment) should translate to around 17-20x P/E multiple for the index. That would equate to about $3300 on the index level or about 10% more downside to this hypothetical downside scenario.

“Inflation is the top data point to watch, as that will ultimately drive Fed policy.”

CAROL SCHLEIF, DEPUTY CHIEF INVESTMENT OFFICER, BMO FAMILY OFFICE, MINNEAPOLIS, MINNESOTA

“In my 40 years in the business, I’ve never seen coincident bear market in both bonds and stocks so investors are unsettled with nowhere to hide”

“No one quite knows how to parse the global data, geopolitics or policy moves – both super stimulative and restrictive, so markets are unsure which to hinge to”

“Sentiment has become very bearish (which is a long term positive for potential market rebound) – but it can stay bearish for a bit.  Also, no overt catalysts to propel breakout to the upside”

“Markets had “fought the Fed” all year, hoping for more dovish tilt soon.  Fed’s message last week was unequivocal, so even though some of the data is supportive of peaked inflation, investor sentiment is approaching wash out level.”

MICHAEL PURVES, CHIEF EXECUTIVE, TALLBACKEN CAPITAL ADVISORS, NEW YORK

    “I am a little bit less concerned about a new closing low. I think that is an interesting data point but it doesn’t really mean we can’t get a very substantial relief rally, nor does it mean we can’t go further down too.”

    “What equity volatility really needs is Treasury volatility to come in here and they are not … we are just seeing yields sky-rocketing.”

    “The bond market is king here, you got to respect that.”   

    “I think there is a good scenario where once we get through the bond market violence we get to a more tradable bottom. There is a good case for that to happen if we get some inflation data that is a lot less scary than the last report.”

ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, IN FAIRFIELD, CONNECTICUT    “It’s disappointing, but it’s not a surprise. We’ve been heading that way.”    “People are concerned about the Federal Reserve, the direction of interest rates, the health of the economy, and also the next couple of weeks with earnings season coming up and companies reporting lower-than-expected earnings.”  (The support level for the S&P is) “a stretch at 3400, maybe 3200 and the worst case is probably 3000.”

    TIM GHRISKEY, SENIOR PORTFOLIO STRATEGIST, INGALLS & SNYDER, NEW YORK

    “It’s all about the Fed, and as long as the Fed continues to raise rates, and investors don’t anticipate an end of the rate hikes, I think this market is going to continue to be weak. Having said that, we’ve seen a number of bear market rallies, year to date. So, would I be surprised to see the market bounce up again? No, I wouldn’t. Traders are looking for opportunities like that. But in terms of a sustained rally, I think it really takes anticipating the end of Fed rate hikes.”  

(Story corrects job title of Christian Ledoux, first commentator, to director of investments, not chief investment officer)

(Americas Economics and Markets Desk; +1-646 223-6300)

Wall Street keeps selling as world assets fail to recover

By Lawrence Delevingne

(Reuters) -U.S. stocks gave up early gains to fall deeper into a bear market on Tuesday, while sterling showed scant movement a day after hitting a record low, as investors remained nervous about a potential global recession.

The pound was little changed at $1.071 after sterling collapsed to $1.0327 on Monday on concern over the funding of recently announced UK tax cuts, which follow huge energy subsidies.

The Bank of England said late on Monday it would not hesitate to change interest rates and was monitoring markets “very closely.” BoE Chief Economist Huw Pill added on Tuesday that central bank was likely to deliver a “significant policy response” to last week’s announcement but it should wait until its next meeting in November before making its move.

The yield on five-year gilts rose about 0.1% to about 4.6%, holding its spike on Monday from just over 4%.

U.S. stocks mostly faltered after a morning bounce, with the S&P 500 hitting a two-year intraday low. The Dow Jones Industrial Average fell 0.42%, the S&P 500 lost 0.20%, and the Nasdaq Composite added just 0.25%

The S&P benchmark index fell more than 20% from its early January high to a low on June 16, confirming a bear market. The index then rallied into mid-August before petering out.

“We don’t see a quick retrenchment or a return to 2% inflation, keeping the Fed in hiking mode. This implies more volatility and a need for caution and balance in equity allocations,” Tony DeSpirito, BlackRock’s chief investment officer for U.S. Fundamental Equities, wrote in a note released on Tuesday.

Markets see a 65% probability of a further 75 basis points move at the next U.S. Federal Reserve meeting in November.

The Fed needs to raise interest rates by at least another percentage point this year, Chicago Fed President Charles Evans said on Tuesday, a more aggressive stance than he has previously embraced that underscores the central bank’s resolve to quash excessive inflation.

“Central bankers have been walking a tightrope trying to curb inflation while attempting to limit recessionary risks,” Bank of America strategists wrote in a note released Tuesday.

“However, their recent tone and ‘jumbo’ rate hikes have reinforced that the foremost priority is controlling inflation, even at the potential cost of a recession.”

GLOBAL CONTAGION

Spillover from Britain kept other assets on edge.

The MSCI world equity index reversed early gains on Tuesday, falling about 0.3% to a near two-year low early Tuesday afternoon. European stocks slipped 0.13%.

MSCI’s broadest index of Asia shares outside Japan hit a fresh two-year low and was flat on the day. Japan’s Nikkei gained about 0.5%.

Bond selling in Japan pushed yields up to the Bank of Japan’s ceiling and prompted more unscheduled buying from the central bank, while euro zone government bond yields rose to new multi-year highs on Tuesday.

Benchmark U.S. 10-year Treasury yields also rose to their highest in more than 12 years as investors braced for higher interest rates.

The dollar held gains on Tuesday in its relentless rally while sterling, the euro and Japanese yen regained little ground from multi-year lows after unusually volatile trading in recent sessions.

There was some good news. New orders for U.S.-manufactured capital goods increased more than expected in August, suggesting that businesses remained keen to invest in equipment, and a survey showed consumer confidence rising for a second straight month in September.

Oil rallied after plunging to nine-month lows in the previous session, helped by supply curbs in the U.S. Gulf of Mexico ahead of Hurricane Ian and by a slightly softer dollar.

Brent crude settled 2.6% higher at $86.27 a barrel, and U.S. crude ended at $78.50, up 2.3%.

Dutch and British gas prices spiked on news that the Nord Stream gas pipeline from Russia to Europe had suffered damage, raising concerns over the security of the bloc’s energy infrastructure and triggering a sabotage probe.

Gold, which hit a 2-1/2-year low on Monday, rose around 0.3% to $1,626 an ounce.

Bitcoin briefly broke above $20,000 for the first time in about a week, as cryptocurrencies bounced.

(Reporting by Lawrence Delevingne in Boston and Carolyn Cohn in London; Additional reporting by Xie Yu in Hong Kong; editing by Jonathan Oatis, Richard Chang and Marguerita Choy)

Break It or Make It – S&P 500 Is On The Edge

Stock investors are trying to figure out the markets next move as all three indexes just tumbled back below the June lows, it is not surprising that the CBOE Volatility Index, aka the VIX, has climbed to its highest levels since mid-June as well, trading to over 32 yesterday.

Are We Into Recession?

Bears will argue that if the US economy takes steps toward a more full-blown recession and investor sentiment turns even more bearish the S&P 500 could tumble to sub-3,000 levels, which is where the market was trading in October of 2019 a few months prior to the Covid outbreak.

The US dollar is creating a major headwind, and wage-growth looks difficult to slow. Meaning overall corporate profit margins could remain in the crosshairs for an extended period of time.

The Federal Reserve’s aggressive tightening program continues to fuel the US dollar rally while also pushing bond yields higher, two major pain points for stock bulls right now. A report from EPFR Global circulating shows that some +$30 billion flowed into cash last week alone, raising investors’ total cash pile to +$4.6 trillion.

There is another +$18 trillion sitting in bank accounts and +$150 billion in ultra-short bond funds. It’s likely that, return wise, money markets and bonds will only get more attractive as their rates climb in-step with the Fed’s benchmark rate, at least until investors believe the Fed is nearing the end of its rate hiking campaign.

The high degree of volatility and general uncertainty stands to continue boosting the appeal of these “safe havens” at the expense of money flowing into stocks. While that massive pile of cash will likely make its way back into stocks eventually many investors for now seem inclined to wait for more clear signs that the Fed is going to back off.

Many believe that a slowdown in the housing market could take a big bite out of overall inflation levels as shelter costs account for about a third of the Consumer Price Index (CPI). The pace of home price gains has slowed but outright declines have mostly been limited to regions that may have gotten a little overheated during the pandemic.

Keep in mind, while a more widespread decline in home prices might help pull down headline inflation eventually, there is also a risk that a major downturn could usher in a recession as consumers watch their home equity sink closer to zero.

Data to Watch

There is also always the risk of fallout spreading across other financial markets. The FHFA House Price Index, the Case-Shiller Home Price Index, and New Home Sales will all provide updates on the housing market today. Richmond Fed Manufacturing and Consumer Confidence are also due today.

On the earnings front, Advantest, Cintas, Concentrix, Jefferies Financial, Paychex, and Vail Resorts are all scheduled to report.

Has the Crypto Market First Felt the Risk Appetite?

Market Picture

Bitcoin rose 1.1% on Monday, and on Tuesday morning, it “shot up” another 5.5%, adding 7.5% over the past 24 hours. This growth momentum has brought the price of the first cryptocurrency back above $20K, in stark contrast to the dynamics of falling markets and a strengthening dollar.

Bitcoin daily chart

Ethereum added almost as much – 7% – rising to $1,385. Against this backdrop, total crypto market capitalisation jumped 5.5% to $970 billion, with top altcoins adding between 2.3% (XRP) and 8.1% (Solana).

According to CoinShares, investments in cryptocurrencies rose for the second consecutive week last week. Net inflows were $8 mln, Bitcoin investments were up $3 mln, and Ethereum investments were up $7 mln. Investments in funds that allow shorts on bitcoin were down $5 mln, the first decline in 8 weeks.

While the Dow Jones index closed at its lowest since November 2020, the Nasdaq100 turned to growth after nearing the lows of June, and cryptocurrencies showed a strong surge. The outperformance of the riskiest assets is more typical of periods of great monetary stimulus. Therefore, the most relevant question is whether we are now see ing the first signs of a market reversal or a trap for naive bulls.

News Background

Bitcoin will continue to trade in a range of $17K to $25K, Glassnode expects. Intense US Federal Reserve monetary policy pressure and an unfavourable macroeconomic climate offset any essential positive developments in the crypto industry.

Dan Morehead, CEO of crypto hedge fund Pantera Capital, believes billions of people will use blockchain in the coming years, increasing the value of cryptocurrencies.

The SEC has demonstrated that it intends to “damage or destroy the cryptocurrency industry in the US”, said LBRY, a decentralised content publishing platform.

Technology giant Apple has allowed the sale of collectable tokens (NFTs) in apps on its devices, but the commission will be 30%, sparking outrage in the crypto community.

by FxPro’s Senior Market Analyst Alex Kuptsikevich

The Dow is in a bear market. What does that mean?

(Reuters) – The Dow Jones Industrial Average, the oldest of Wall Street’s three main stock indexes, dropped 1.1% on Monday, extending the decline from its January peak to more than 20%, meeting a common definition for a bear market.

Worries that the Federal Reserve’s war against decades-high inflation is pushing the U.S. economy into a downturn have sent the U.S. stock market tumbling in 2022.

With the S&P 500 and Nasdaq already down some 23% and 32%, respectively, from their record highs, confirmation the Dow is also in a bear market is just the latest milestone in 2022’s market turmoil.

While the Dow, with only 30 large-cap companies, is a much narrower index than the other two, it is historically the one Main Street watches most closely.

On Wall Street, the terms “bull” and “bear” markets are often used to characterize broad upward or downward trends in asset prices. Many investors use the terms loosely, and analysts don’t always share the same specific definitions, particularly about when to call the end of a bear market.

Indeed, for professionals these are just labels that are less important than fundamentals like company earnings and valuations, interest rates and economic conditions.

Some investors define a bear market specifically as a decline of at least 20% in a stock or index from its previous peak, with the peak defining the beginning of the bear market, which is only recognized in hindsight following the 20% decline.

Similarly, some define a bull market as a 20% rise from a previous low. However, S&P Dow Jones Indices, which administers the S&P 500 and Dow Jones Industrial Average, has an even more nuanced definition.

A drop of 20% or more from a high, followed by a 20% gain from that lower level, would leave an index still below its previous peak, a situation S&P Dow Jones Indices Senior Index Analyst Howard Silverblatt describes as a “bull rally in a bear market.”

Indeed, investors can only be sure they are in a new bull market once a new record high has been reached, and at that point, the previous low would mark the end of the bear market and beginning of the new bull market, according to S&P Dow Jones Indices.

(Reporting by Noel Randewich; Editing by Alden Bentley and Nick Zieminski)

Lowered profit forecasts raise concerns on shaky Wall Street

By Caroline Valetkevitch

NEW YORK (Reuters) – Recent profit warnings from bellwether companies like Ford Motor Co, may signal more challenges ahead for corporate America, increasing wariness for investors as the stock market deepens its sell-off.

Investors are increasingly pricing in a U.S. economic downturn next year. The U.S. Federal Reserve raised interest rates by three-quarters of a percentage point for a third straight time on Wednesday in its fight to combat inflation, and some analysts think the aggressive hikes could tip the economy into recession.

With that, concern about earnings has been rising as companies face higher inflation and possibly weakening demand.

Ford Motor warned last Monday that inflation-related supplier costs will run about $1 billion higher than expected in the current quarter, while FedEx Corp outlined on Thursday cost cuts of up to $2.7 billion after falling demand hammered first-quarter profits.

The announcements are “very important, especially if there is a spate of future warnings,” said Quincy Krosby, chief global strategist, LPL Financial in Charlotte, North Carolina.

“The market is most worried about demand slowing in the U.S. and demand slowing globally,” she said.

Analysts have cut their S&P 500 earnings estimates for the third and fourth quarters, and for all of 2022.

For the third quarter, analysts expect overall S&P 500 earnings to have increased just 4.6% over the year-ago period, compared with growth of 11.1% expected at the start of July, while they see earnings for all of 2022 growing by 7.7% versus 9.5% seen on July 1, according to IBES data from Refinitiv as of Friday.

“Really up until maybe a month or two ago, we didn’t see much in the way of earnings downgrades. That is now changing, and it is playing catch-up,” said Paul Nolte, portfolio manager at Kingsview Investment Management in Chicago. “It is more fallout, and it is expected.”

Third-quarter results start coming by mid-October, marking one of the next big events for stock investors.

Upbeat corporate earnings had helped support the rebound in U.S. stocks over the summer.

But the respite appears over, with the Dow Jones industrial average dropped below its June low to its lowest since November 2020 on Friday, narrowly missing a close more than 20% below its Jan. 4 record all-time closing peak of 36,799.64 points.

That would have confirmed a bear market that began from Jan. 4, according to a conventional definition. The Dow is the only one of the three major indexes not to have bear market status. The S&P 500 is down 23% for the year so far, while the Nasdaq is down 31%. Both are also within close reach of the bottoms reached in June.

Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey, said U.S. companies have a tendency to surprise Wall Street with earnings that are stronger than expected.

“Companies have shown an ability to navigate these kinds of situations before,” he said. “There will be a surprise as to how well earnings can hold up.”

Companies are being hit with a wide range of issues right now. On top of inflation and rising rates, there is Russia’s invasion of Ukraine.

“For now, as an investor, you’re getting hit on every side,” Meckler said. Estimates for earnings “are being reduced at the same time that the multiple is being reduced, and that’s part of what’s causing such a big sell-off.”

The S&P 500’s forward 12-month price-to-earnings ratio is now at 16.3, down from 22 at the end of December and near its long-term average of about 16, according to Refinitiv data.

(Reporting by Caroline Valetkevitch; Editing by Alden Bentley and Nick Zieminski)

Wall Street ends lower, Dow confirms bear market

By Noel Randewich

(Reuters) – Wall Street slid deeper into a bear market on Monday, with the S&P 500 and Dow closing lower as investors fretted that the Federal Reserve’s aggressive campaign against inflation could throw the U.S. economy into a sharp downturn.

After two weeks of mostly steady losses on the U.S. stock market, the Dow Jones Industrial Average confirmed it has been in a bear market since early January. The S&P 500 index confirmed in June it was in a bear market, and on Monday it ended the session below its mid-June closing low, extending this year’s overall selloff.

With the Fed signaling last Wednesday that high interest rates could last through 2023, the S&P 500 has relinquished the last of its gains made in a summer rally.

Graphics: Dow Jones Industrials bear markets – https://fingfx.thomsonreuters.com/gfx/mkt/gkvlgrmygpb/Pasted%20image%201664218594467.png

“Investors are just throwing in the towel,” said Jake Dollarhide, Chief Executive Officer of Longbow Asset Management in Tulsa, Oklahoma. “It’s the uncertainty about the high-water mark for the Fed funds rate. Is it 4.6%, is it 5%? Is it sometime in 2023?”

Confidence among stock traders was also shaken by dramatic moves in the global foreign exchange market as sterling hit an all-time low on worries that the new British government’s fiscal plan released Friday threatened to stretch the country’s finances. [MKTS/GLOB]

That added an extra layer of volatility to markets, where investors are worried about a global recession amid decades-high inflation. The CBOE Volatility index, hovered near three-month highs.

The Dow is now down 20.5% from its record high close on Jan. 4. According to a widely used definition, ending the session down 20% or more from its record high close confirms the Dow has been in a bear market since hitting its January peak.

The S&P 500 has yet to drop below its intra-day low on June 17. It is down about 23% so far in 2022.

In Monday’s session, the Dow Jones Industrial Average fell 1.11% to end at 29,260.81 points, while the S&P 500 lost 1.03% to 3,655.04.

The Nasdaq Composite dropped 0.6% to 10,802.92.

Ten of 11 S&P 500s sector indexes fell, led by 2.6% drops in real estate and energy.

Gains in Amazon <AMZN.O> and Costco Wholesale Corp helped limit losses in the Nasdaq.

Shares of casino operators Wynn Resorts, Las Vegas Sands Corp and Melco Resorts & Entertainment jumped between 11.8% and 25.5% after Macau planned to open to mainland Chinese tour groups in November for the first time in almost three years.

Volume on U.S. exchanges was 11.9 billion shares, compared with the 11.2 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 5.37-to-1 ratio; on Nasdaq, a 2.31-to-1 ratio favored decliners.

The S&P 500 posted no new 52-week highs and 120 new lows; the Nasdaq Composite recorded 16 new highs and 594 new lows.

(Reporting by Shreyashi Sanyal and Ankika Biswas in Bengaluru; Editing by Anil D’Silva, Shounak Dasgupta and David Gregoro)

Analysis-After feverish week, global investors lick wounds and brace for more chaos

By Davide Barbuscia and Dhara Ranasinghe

NEW YORK/LONDON (Reuters) – Global investors are preparing for more market mayhem after a monumental week that whipsawed asset prices around the world, as central banks and governments ramped up their fight against inflation.

Signs of extraordinary times were everywhere. The Federal Reserve delivered its third straight seventy-five basis point rate hike while Japan intervened to shore up the yen for the first time since 1998. The British pound slid to a fresh 37-year trough against the dollar after the country’s new finance minister unleashed historic tax cuts and huge increases in borrowing.

“It’s hard to know what will break where, and when,” said Mike Kelly, head of multi-asset at PineBridge Investments (US). “Before, the thinking had been that a recession would be short and shallow. Now we’re throwing that away and thinking about the unintended consequences of much tighter monetary policy.”

Stocks plunged everywhere. The Dow Jones Industrial Average nearly joined the S&P 500 and Nasdaq in a bear market while bonds tumbled to their lowest level in years as investors recalibrated their portfolios to a world of persistent inflation and rising interest rates.

Towering above it all was the U.S. dollar, which has rocketed to its highest level in 20 years against a basket of currencies, lifted in part by investors seeking shelter from the wild swings in markets.

“Currency exchange rates … are now violent in their moves,” said David Kotok, chairman and chief investment officer at Cumberland Advisors. “When governments and central banks are in the business of setting the interest rates they are shifting the volatility to the currency markets.”

For now, the selloffs across asset classes have drawn few bargain hunters. In fact, many believe things are bound to get worse as tighter monetary policy across the globe raises the risks of a worldwide recession.

“We remain cautious,” said Russ Koesterich, who oversees the Global Allocation Fund for Blackrock, the world’s largest asset manager, noting his allocation to equities is “well below benchmark” and he is also cautious on bonds.

“I think there’s a lot of uncertainty on how quickly inflation will come down, there’s a lot of uncertainty about whether or not the Fed will go through with as an aggressive tightening campaign as they signaled this week.”

Kotok said he is positioned conservatively with high cash levels. “I’d like to see enough of a selloff to make entry attractive in the U.S. stockmarket,” Kotok said.

The fallout from the hectic week exacerbated trends for stocks and bonds that have been in place all year, pushing down prices for both asset classes. But the murky outlook meant that they were still not cheap enough for some investors.

“We think the time to go long in equities is still ahead of us until we see signs that the market has bottomed,” said Jake Jolly, senior investment strategist at BNY Mellon, who has been increasing his allocation to short duration sovereign bonds.

“The market is getting closer and closer to pricing in this recession that is widely expected but it is not yet fully priced in.”

Rough week in global equities https://graphics.reuters.com/USA-STOCKS/GLOBAL/dwvkrxoxapm/chart.png

Goldman Sachs strategists on Friday lowered their year-end target for the benchmark U.S. stock index, the S&P 500, to 3,600 from 4,300. The index was last at 3,693.23.

Bond yields, which move inversely to prices, surged across the world. Yields on the benchmark U.S. 10-year Treasury hit their highest level in more than 12 years, while Germany’s two-year bond yield rose above 2% for the first time since late 2008. In the UK, five year gilts leapt 50 bps — their biggest one-day jump since at least late 1991, according to Refinitiv data.

“At some point, the fears will shift from inflation to growth,” said Matthew Nest, global head of active fixed income at State Street Global Advisors, who thinks bond yields have moved so high they are starting to look “pretty attractive.”

Central banks ramp up fight against inflation https://graphics.reuters.com/GLOBAL-CENTRALBANKS/klvykaanlvg/chart.png

Investors fear things will get worse before they get better.

“The question is now not whether we are going into a recession, it is how deep will the recession be, and might we have some form of financial crisis and major global liquidity shock,” said Mike Riddell, a senior fixed income portfolio manager at Allianz Global Investors in London.

Because monetary policy tends to work with a lag, Riddell estimates the renewed hawkishness from central banks means the global economy will be even weaker by the middle of next year.

“We are of the view that markets are still massively underestimating the global economic growth hit that is coming,” he said.

(Reporting by Davide Barbuscia, Saqib Iqbal Ahmed and David Randall in New York and Dhara Ranasinghe in London; Writing by Lewis Krauskopf; Editing by Ira Iosebashvili, Megan Davies and Daniel Wallis)

S&P 500 Poised to Break into Bear Market Territory; Weaker Dollar Key to Turning Stockmarket Around

U.S. stock index futures are edging lower on Monday, shortly before the cash market opening as traders brace for more selling pressure. The weakness is being fueled by worries that the Federal Reserve’s aggressive push to curb inflation may tip the American economy into recession.

At 12:23 GMT, the blue chip Dow Jones Industrial Average is trading 29462.00, down 207.00 or -0.70%. The benchmark S&P 500 Index is at 3678.15, down 30.25 or -0.82% and the tech-heavy NASDAQ Composite is at 11296.15, down 80.00 or -0.70%.

Weakening investor sentiment is being fueled by surging global interest rates and turmoil in the foreign currency markets.

S&P 500 Breathing on Bear Market Low

In the cash market, investors will be closely watching the S&P 500 for any break below its bear market low. The S&P’s low close for the year in June was 3,666.77. It closed Friday at 3,693.23 after trading briefly below that close. The benchmark’s intraday low for the year is 3636.87. Any trade below those levels could drive more selling in the market.

Tumultuous Forex Trade Could Create Havoc for Stocks

The British Pound plunged to a record low on Monday against the U.S. Dollar. Sterling at one point fell to an all-time low of $1.0382. The move is being fueled by a combination of the Federal Reserve’s aggressive hiking campaign and last week’s announcement by the new U.K. government that it would implement tax cuts and investment incentives to boost growth.

The consensus doesn’t believe there will be a currency intervention on the Sterling, but the onus is now on the central bank to do more to tight policies to stabilize the British Pound.

Unless there is severe financial distress due to the weakening currency, the Bank of England will wait until its next meeting to show decisive action to raise rates aggressively in the next couple of meetings.

Cyclical Stocks Trading Lower on Worries Over Fed-Driven Recession

In premarket trading on Monday, cyclical stocks traded convincingly lower on worries that a series of sharp interest rate hikes by the Fed could rattle the economy.

Boeing Co, Chevron Corp, Caterpillar Inc and JPMorgan Chase & Co fell more than 1% each, while growth stocks including Apple Inc, Microsoft Corp, Amazon.com Inc and Tesla Inc shed between 0.4% and 0.5%.

Short-Term Outlook

Going into today’s trading session, I believe investors should be focused on the U.S. Dollar. It’s hard not to have concerns about long-term stock market performance with the dollar accelerating, global yields soaring and the breakdowns across the global FX.

However, a concerted effort by the major central banks to bring the U.S. Dollar could trigger a dramatic reversal in equity prices.

For a look at all of today’s economic events, check out our economic calendar.