Stocks erased earlier gains that were driven by technical factors amid ongoing concern over an economic recession.
(Bloomberg) — Stocks erased earlier gains that were driven by technical factors amid ongoing concern over an economic recession.
The S&P 500 pushed lower for the sixth time in seven days, while the tech-heavy Nasdaq 100 underperformed. Treasuries slumped across the curve, taking the 10-year yield above 3.25%. The dollar advanced.
US shares have wiped out about half of a rally from their June lows after the Federal Reserve signaled it will stay hawkish as it confronts the hottest inflation in four decades.
To Matt Maley at Miller Tabak + Co., any gains at this point should be seen as a short-term relief rally after a rough couple of weeks. He says traders should use any bounces as an opportunity to get more defensive.
“We should get an incredibly great opportunity to ‘buy on weakness’ in the coming months,” he added. “We just don’t think this past June was that great opportunity.”
Meantime, one of Wall Street’s biggest bears is turning even more pessimistic on the outlook for profits.
Morgan Stanley strategist Mike Wilson cut his expectations for earnings-per-share growth, saying that a slowing economy is now likely to be a bigger concern for stocks. In 2023, he expects profits to fall 3% even in the absence of a recession.
Investors are unwinding their equity positions as if a deep recession is already here. So say strategists at Deutsche Bank AG, who found that a historically strong link between discretionary investors’ equity exposure and the ISM manufacturing index is unwinding.
Their current stock exposure stands at the bottom-10th percentile of historical observations after a sharp drop last week. Historically, that’s been consistent with an ISM print of 47, below the level of 50 that signals recession.
Global equity funds had outflows of $9.4 billion in the week to Aug. 31, the fourth-largest redemptions this year, according to EPFR Global data cited by Bank of America Corp. US equities had the biggest exodus in 10 weeks, while $4.2 billion left global bond funds.
In corporate news, Bed Bath & Beyond Inc. declined after Chief Financial Officer Gustavo Arnal fell to his death Friday from a Manhattan skyscraper. CVS Health Corp. reached a deal to buy home-health and technology services provider Signify Health Inc. for about $8 billion.
What to watch this week:
- Apple event due to feature new iPhones, watches, Wednesday
- Bank of England Governor Andrew Bailey at Treasury Committee, Wednesday
- Fed’s Beige Book of regional economic activity, Wednesday
- Cleveland Fed President Loretta Mester due to speak, Wednesday
- European Central Bank rate decision, Thursday
- Fed Chair Jerome Powell due to speak, Thursday
- Chicago Fed President Charles Evans and his Minneapolis counterpart Neel Kashkari due to speak, Thursday
- EU energy ministers extraordinary meeting on emergency intervention in electricity markets, Friday
Are you bullish on energy-related assets? This week’s MLIV Pulse survey focuses on energy and commodities. Please click here to participate anonymously.
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.1% as of 9:49 a.m. New York time
- The Nasdaq 100 fell 0.3%
- The Dow Jones Industrial Average fell 0.2%
- The Stoxx Europe 600 rose 0.2%
- The MSCI World index fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.4% to $0.9891
- The British pound rose 0.1% to $1.1530
- The Japanese yen fell 1.3% to 142.43 per dollar
Bonds
- The yield on 10-year Treasuries advanced 12 basis points to 3.31%
- Germany’s 10-year yield advanced three basis points to 1.59%
- Britain’s 10-year yield advanced 12 basis points to 3.06%
Commodities
- West Texas Intermediate crude rose 0.7% to $87.46 a barrel
- Gold futures fell 0.1% to $1,720.60 an ounce
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