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Markets

European stocks climb as global markets look for rebound; Stoxx 600 up 1%

LONDON — European stocks advanced on Friday as global markets looked to regain some ground after a bruising week, with investors assessing the outlook for inflation and interest rates.

The pan-European Stoxx 600 added 1% in early trade, with banks climbing 1.9% to lead gains as all sectors and major bourses entered positive territory.

European markets fell on Thursday as investors remained concerned about slowing growth, interest rate hikes and red-hot April inflation data from the United States, which sparked concerns that a path of aggressive interest rate hiking lies ahead.

US Federal Reserve Chairman Jerome Powell said Thursday that he could not guarantee a so-called “soft landing” that tempers inflation without pushing the economy into recession.

Global stocks have endured a rollercoaster week but look set to regain some ground on Friday. Shares in Asia-Pacific advanced by mid-afternoon with Japan’s Nikkei 225 leading the way on a 2.6% climb.

Meanwhile, US stock futures were higher in early premarket trade as investors hope the S&P 500 can avoid sliding into bear market territory, with the index closing down more than 18% from its all-time high on Thursday, just 2% shy of an official bear market.

The tech-heavy Nasdaq is already in a bear market, closing Thursday down more than 29% from its all-time high, while the Dow Jones Industrial Average has failed for six consecutive trading sessions.

The Stoxx 600 in Europe began Friday’s session down 13% since the beginning of the year.

Stock picks and investing trends from CNBC Pro:

Investors are also monitoring the geopolitical fallout from the war in Ukraine. Russia on Thursday threatened retaliation against Finland after Finnish leaders said the northern European nation must apply to join NATO “without delay.”

European leaders are also facing a race to secure alternative gas suppliers after Moscow announced sanctions on European subsidiaries of its majority state-owned corporation Gazprom. The move came after Ukraine’s state-owned grid operator suspended Russian flows into Europe through a key entry point.

On the data front, French inflation was confirmed at an annual 5.4% in April.

Euro area industrial production readings for March are due on Friday morning.

In terms of individual share price movement, British investment company Bridgepoint Group jumped more than 10% following its annual general meeting, while Finnish state-owned energy company Fortum climbed 9.9% in early trade.

Shares of Belgian pharmaceutical company UCB fell 13% after the US Food and Drug Administration said it cannot approve a key psoriasis drug.

Swedish industrial company Atlas Copco dropped 75% due to recalculation after a share split which came into effect on Friday, whereby one share was replaced by four new ordinary shares and one redemption share.

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Categories
Markets

US stocks futures swing higher as S&P 500 fights off bear market territory

US stock futures were pointing to a higher start for Wall Street at the end of a volatile week, after Federal Reserve Chairman Jerome Powell cooled speculation about the potential for 75-basis point rate hikes.

How are stock-index futures trading?
  • S&P 500 futures ES00,
    +1.20%
    rose 1.1% to 3,971

  • Dow Jones Industrial Average futures YM00,
    +0.88%
    264 points, or 0.8%, to 31,917

  • Nasdaq 100 futures NQ00,
    +1.92%
    climbed 1.7% to 12,158

On Thursday, the Dow industrials DJIA,
-0.33%
dropped 103.81 points, or 0.3%, to end at 31,730.30, about 500 points off the session’s low, but notching a sixth day of losses. The S&P 500SPX,
-0.13%
slipped 0.1% to 3,930.08. The Nasdaq Composite COMP,
+0.06%
rose 0.1% to 11,370.96.

What’s driving the markets?

The Fed is not “actively considering” a 75-basis point interest rate increase, Fed Chairman Powell told Marketplace after the market close on Thursday, though he also said the central bank may not be able to engineer a “soft landing” for the economy .

Stocks wall losses on Thursday after the Senate confirmed Powell him to a second term.

But even if equities can manage a win on Friday, all three indexes are headed for sizable weekly losses, led by the Nasdaq, down 6.3% as of Thursday. That would mark the battered tech index’s sixth straight weekly loss, with the Dow industrials set to mark its seventh consecutive weekly loss, off 3.5%.

Down 4.6%, the S&P 500 is also poised to mark a sixth-straight weekly fall, as it also skirts bear market territory, defined as a drop of 20% from a recent peak. Off 18.1% from a Jan. 3 record high, the S&P would only need to close at or below 3,837.24 to enter a bear market.

Read: The S&P 500 is on the brink of a bear market. Here’s the threshold.

It would also mark the first time in over a decade that the index has seen six straight weeks of declines, pointed out to a team of Deutsche Bank strategists led by Henry Hill.

“Unlike in April, when the equity declines were triggered by the prospect of a more aggressive Fed tightening cycle and went hand-in-hand with sovereign bond losses, this week’s declines have much more obviously surrounded global growth risks, which you can see in the way that Fed Funds futures are now beginning to take out some of the tightening they’d been pricing in over the year ahead,” said Hill.

The market has endured higher-than-forecast consumer prices this week, as well as continued high producer prices.

Read: Fed tightening comes ‘fraught with volatility’ in the stock market, but this JPMorgan portfolio manager says he isn’t betting on a US recession

Economic data ahead includes April import prices at 8:30 am Eastern, followed by the University of Michigan consumer sentiment index for May at 10 am Eastern and comments by Minneapolis Fed President Neel Kashkari at 11 am Eastern.

Some recovery in battered cryptocurrency markets on Friday may also be helping sentiment overall, analysts said.

BitcoinBTCUSD,
+6.00%
was trading at $30,360, after staging a slight recovery from a roughly 16-month low hit Thursday of $25,400, amid a collapse of some stablecoins, which are supposed to be pegged to the dollar.

Read: Why is UST, LUNA crashing? Collapse of a eleven $40 billion cryptocurrency, explained

How are other assets trading?
  • Treasury yields were on the rise. The yield on the 10-year note TMUBMUSD10Y,
    2,900%
    rose 6 basis points to 2.875%, while that of the 2-year TMUBMUSD02Y,
    2,594%
    gained 6 basis points to 2,760%.

  • Oil futures rose modestly, with the US benchmark CL.1,
    +0.87%
    up 0.7% at $106.90 a barrel. Gold futures GC00,
    +0.08%
    inched down to $1,823.20 an ounce.

  • The Stoxx Europe 600 SXXP,
    +0.93%
    rose 0.6%, while London’s FTSE 100 UK:UKX gained 0.8%.

  • The Shanghai Composite CN:SHCOMP rose 0.9%, while the Hang Seng Index HK:HSI jumped 2.3% and Japan’s Nikkei 225 JP:NIK surged 2.6%.

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Categories
Markets

Apple Stock Has Broken Down. That’s Bad for the Market.

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Categories
Markets

The S&P 500 is on the brink of a bear market. Here’s the threshold.

The latest bull market for US stocks was on the brink of expiring Thursday afternoon, with the benchmark S&P 500 holding just shy of the threshold that marks bear territory.

The S&P 500SPX,
-0.91%
was down 73 points, or 1.9%, at 3,860.88 in afternoon trade, after finishing Wednesday around 18% below its record close from early January. A finish below 3,837.25 would mark a 20% fall, according to Dow Jones Market Data, meeting the widely used technical definition of a bear market.

The S&P 500 entered correction territory — a fall of 10% from a recent peak — last month, its second such foray this year. A tough April for stocks has been followed by an ugly May, with equities suffering as investors continue to dump megacap tech stocks and other highflying pandemic darlings amid investor jitters over inflation that continues to run historically hot and a Federal Reserve that is moving to quickly raise interest rates and otherwise tighten monetary policy in an effort to get those price pressures under control.

Hopes that an eagerly awaited reading on April consumer price inflation on Wednesday would show inflation had peaked and help steady the ship offered little solace to jittery investors. While the annual pace of inflation slowed to 8.3% from 8.5% in March, it was still hotter than the 8.1% reading expected by economists. Moreover, a core CPI reading, which strips out food and energy, showed an unexpected monthly rise.

Read: What’s next for stocks and bonds after inflation data fails to provide ‘watershed moment’

The S&P 500 is down 6.5% so far in May, while the tech-heavy Nasdaq Composite COMP,
-0.69%,
which entered a bear market earlier this year, has dropped 9.6% so far in May and the blue-chip Dow Jones Industrial Average DJIA,
-1.10%
is down around 5.2%.

Dow Jones Market Data

The S&P 500 ended its last bull market on March 12, 2020, as the outbreak of the COVID-19 pandemic sent stocks tumbling. The bottom of the pandemic-inspired bear market came on March 23, 2020, with the S&P 500 marking a 33.9% fall from its bull market peak on Feb. 19, 2020.

Based on figures going back to 1929, the average bear market sees a peak to bear-market low decline of 33.5%, and a median fall of 33.2%, according to Dow Jones Market Data. On average, it has taken 80 trading days for the S&P 500 to hit its low after entering a bear market — and a median 52 trading days, the data showed.

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Categories
Markets

Stock Market Today: Dow Drops, Bitcoin Plunges

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Categories
Markets

Opinion: The S&P 500’s charts are pointing to more stock-market losses

This past week, the S&P 500 index plunged to new relative lows. It is now trading at prices last seen in March 2021. This latest move downward violated support at 4100-4200 and prompted a swift move down toward possible support at 3900. The next support area below that is 3700 – the lows of February and March 2021 .

The S&P SPX,
+0.13%
is quite oversold, although as readers know, “oversold does not mean buy.” Even so, oversold rallies accompany bear markets. They usually top out at about the level of the declining 20-day moving average or perhaps slightly above that.

The bulls have tried to engineer a couple of oversold rallies of late, but they turned out to be one-day affairs that – while looking spectacular for one day – had no staying power. Those occurred on April 28 and May 4.

Currently, the 20-day moving average is at 4240 and dropping rapidly. Above that, those two one-day rallies topped out near 4300, so that general area of ​​4240-4300 represents resistance.

Lawrence McMillan

So far, SPX has not set up a new McMillan Volatility Band (MVB) buy signal, because it has not closed above 4308. It would set up a new signal at lower levels if it could close below the -4σ “modified Bollinger Band. ” It has not been able to do that.

In fact, SPX has been “walking” down the narrow alley between the -3σ and -4σ Bands. Those Bands are dropping more rapidly now because realized volatility has increased substantially. The S&P’s 20-day historical (realized) volatility is 31% – a very high level.

Equity-only put-call ratios continue to rise sharply, and that means they are still on sell signals. They will only generate buy signals when they roll over and begin to decline. This is the highest level that they have been at since March 2020, and they are certainly in oversold territory, but they are not yet on buy signals.

Meanwhile, the total put-call ratio finally registered a reading above 1.00 on one day this past week. A buy signal from that indicator does not normally occur until its 21-day moving average reaches 0.90 or higher. At this time, it is 0.837 – so it is not near a buy signal either.

Lawrence McMillan

Lawrence McMillan

Market breadth has been poor, as one might imagine. There was another “90% down day” on May 5. Both breadth oscillators are on sell signals and are deeply oversold. These oscillators are at nearly the same levels as they were in late January, when an oversold rally did occur – but the market’s psyche was in a much more bullish place in late January than it is now.

In any case, it is going to take at least two or three days of positive breadth (ie, more advances than declines) for these to roll over to buy signals.

New 52-week lows continue to obliterate new 52-week highs. One day this week saw only 5 new highs on the NYSE. This indicator remains bearish and deeply oversold. It would take two days on which new highs exceed new lows on the NYSE to turn this bullish. That can happen sooner than one might think, but it does not seem to be in the cards at this time.

The most recent VIX “spike peak” buy signals have been stopped out, but that also means that VIX VIX,
+2.43%
is back in “spiking mode.” Thus, a new “spike peak” buy signal will set up soon. This indicator is quite sensitive to oversold reversals, and thus is usually one of the first bullish indicators in a declining market.

So far, though, the recent signals have been losing ones (blue “B’s” on the accompanying VIX chart are losing “spike peak” buy signal trades, but the system that we use to trade this indicator). This is somewhat typical action during bearish markets, and the last time it happened was March-April 2020.

Lawrence McMillan

The trend of VIX remains bearish for stocks, as both VIX and its 20-day moving average are above the 200-day MA. That would only be interrupted by VIX closing below the 200-day, which is not going to happen anytime soon, since the 200-day is at about 22 (and slowly rising).

The construct of volatility derivatives has turned modestly negative in its outlook for the stock market, and it is struggling to keep from turning seriously negative. The front-month May VIX futures is trading fractionally higher than the June futures. If May rises more than 1.00 points above June, that would generate a more serious sell signal.

Meanwhile, the term structure of the VIX futures is sloping downward modestly, which is another mild negative for stocks. If that term structure inverts steeply, it would generate an intermediate-term sell signal for stocks.

Overall, VIX and its derivatives have not been responding the way one would normally expect to see in a bearish market. VIX has not even probed above 40 yet, and the term structure continues to remain relatively flat. Sometimes this happens – most noticeably in February and March of 2009, when VIX remained flat (albeit at the 55 level) while the stock market plunged to the bear market lows. A less severe, but similar, case occurred in December 2018 as well.

In summary, we continue to retain a “core” bearish position and will do so as long as the trends of SPX (downward) and VIX (upward) are in place. We will trade oversold buy signals around that “core” position, but only if they are confirmed signals.

New recommendation: Potential VIX ‘spike peak’ buy signal

The highest price that VIX has reached since stopping out the previous buy signal was 35.48 on May 9. A new VIX “spike peak” buy signal will occur when VIX closes at least 3.00 points below the highest price that it has reached, using price of May 9 and thereafter.

IF VIX closes at least 3.00 points below the highest price that it reached from May 9 forward,

THEN buy 1 SPY June (17th) at-the-money call

And sell 1 SPY June (17th) call with a striking price 20 points higher.

New Recommendation: Black Knight (BKI)

A takeover bid from The Intercontinental Exchange ICE,
+2.42%
was accepted by Black Knight BKI,
+0.12%
that was supposedly “worth” $85. In reality, it is less than that, because part of the deal is for ICE stock, which has plummeted since the deal was announced.

Digging through the news release, it appears that the deal is 80% cash at $63.20, plus 20% in ICE stock. So the deal is 63.20 + 0.2 * ICE, which is worth $82.11 with ICE trading at 94.55. BKI is trading at 69.34, which is a very wide spread. So we are going to buy BKI calls, looking for the spread to narrow.

Buy 3 BKI June (17th) 70 calls

At a price of 2.50 or less.

BKI: 69.44 June (17th) 70 call: offered at 3.00

We will hold without a stop initially.

Lawrence McMillan

Follow up action

All stops are mental closing stops unless otherwise noted.

We are going to implement a “standard” rolling procedure for our SPY spreads: in any vertical bull or bear spread, if the underlying hits the short strike, then roll the entire spread. That would be roll up in the case of a call bull spread, or roll down in the case of a bear put spread. Stay in the same expiration, and keep the distance between the strikes the same unless otherwise instructed.

Long 2 ZEN May (20th) 125 calls and Short 2 May (20th) 140 calls: The stock gapped to the upside when Zendesk ZEN,
-1.96%
began to evaluate strategic alternatives. Hold without a stop while the activist activity is in progress.

Long 3 SAVE May (20th) 25 calls: Hold without a stop for now, as competing bids are still in place for Spirit Airlines SAVE,
-4.11%.

Long 2 ENV May (20th) 80 calls: Continue to hold without a stop while the takeover rumors play out.

Long 2 SPY May (20th) 401 puts and Short 2 SPY May (20th) 376 putts: We originally bought this spread in line with the sell signal from the trend of VIX. It was rolled down when SPY traded at 401 on May 9. We will hold this spread as long as VIX remains above its 200-day moving average, which is currently at about 22.

Long 0 SPY May (27th) 428 call and short 0 SPY May (27th) 443 calls: This spread was bought on April 28, the day that the latest VIX “spike peak” buy signal occurred. It was stopped out on Monday, when VIX closed above 33.81.

Long 4 MAT May (20th) 25 calls: We bought these because of the takeover rumors that have been spreading. The closing, trailing stop remains at 24.

Long 0 CHK May (20th) 95 calls: These calls were bought last week and were then stopped out on Monday, when Chesapeake Energy CHK,
-1.65%
closed below 86.

Send questions to: [email protected]

Lawrence G. McMillan is president of McMillan Analysis, a registered investment and commodity trading advisor. McMillan may hold positions in securities recommended in this report, both personally and in client accounts. He is an experienced trader and money manager and is the author of the bestselling book “Options as a Strategic Investment.”

Disclaimer: ©McMillan Analysis Corp. is registered with the SEC as an investment advisor and with the CFTC as a commodity trading advisor. The information in this newsletter has been carefully compiled from sources believed to be reliable, but accuracy and completeness are not guaranteed. The officers or directors of McMillan Analysis Corp., or accounts managed by such persons may have positions in the securities recommended in the advisory.

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Categories
Business

GM and Ford Get Double Downgrades to Sell. Wells Fargo Sours on EVs.

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Markets

5 things to know before the stock market opens Thursday, May 12

Here are the most important news, trends and analysis that investors need to start their trading day:

1. Stock futures drop after Wall Street extends its multiday losing streak

Traders on the floor of the NYSE, May 11, 2022.

Source: NYSE

US stock futures dropped Thursday as the broad sell-off and revaluation of risk assets continued with little place to hide. Confirmation on somewhat moderate inflation did not move the needle.

  • The morning after earnings, the Dow component Disney dropped nearly 5% to $100 per share in the premarket.
  • Apple, recently slumping with the rest of the market, has been dethroned as the world’s most valuable company by oil giant Saudi Aramco.
  • Ford and General Motors both fell sharply in the premarket. Wells Fargo downgraded both stocks two notches to underweight from overweight, saying 2022 could be “peak profits” for legacy automakers.
  • Bitcoin and the entire crypto market’s recent downturn intensified Thursday.
  • Treasury prices, which move inversely to yields, jumped as investors sought the perceived safety of bonds.
  • The Dow Jones Industrial Average, the S&P 500 and the Nasdaq on Wednesday fell 1%, more than 1.6% and nearly 3.2%, respectively, as multiday losses mounted.

2. Wholesale inflation rose 11% in April as producer prices keep accelerating

People work at the Rivian Automotive electric vehicle factory in Normal, Illinois, April 11, 2022.

Kamil Krzaczynski | Reuters

The producer price index, this week’s second major inflation report, rose 0.5% in April, as expected. The core rate, which excludes food and energy prices, gained a less-than-expected 0.4%. Year-over-year, April PPI was up 11% and core was up 8.8%. On Wednesday, April consumer prices logged another strong advance, albeit at a slightly slower rate.

  • A read on the second pillar of the Federal Reserve’s dual mandate of fostering price stability and maximum employment was also out before the opening bell Thursday. Initial jobless claims for the week ended May 7 rose slightly to 203,000. Estimates had called for fewer first-time claims for last week.
  • While lower early Thursday, bond yields have been rising to multiyear highs, with the 10-year Treasury yield topping 3%, as traders revolt against the Fed, worrying that inflation will remain high even as the economy slows.

3. Bitcoin plunges to 16-month lows while the entire crypto market slumps

Bitcoin slipped at one stage to below $27,000 on Thursday for the first time in more than 16 months, as the cryptocurrency market extended its losses, in part, on fears over rising inflation. Bitcoin, touted as a store of value like gold by proponents, has been trading in tandem with tech stocks and the Nasdaq recently. The world’s largest crypto has failed 60% since its all-time high in November.

  • Tether, the world’s largest stablecoin, broke below its $1 peg Thursday, adding to market concern after the downfall of stablecoin protocol Terra. TerraUSD, or UST, is also supposed to mirror the value of the dollar, but it plummeted to less than 30 cents Wednesday, shaking investor confidence in decentralized finance. TerraUSD was trading around 45 cents Thursday.

4. Disney sinks as CFO warns streaming won’t be as strong later this year

In this photo illustration, a hand holding a TV remote control in front of the Disney Plus logo on a TV screen.

Raphael Henrique | Soup Images | lightrocket | Getty Images

Shares of Disney initially rose in after-hours trading Wednesday. But they quickly turned lower after the company’s CFO acknowledged that the second half of the year may not be quite as strong relative to the first half when it comes to streaming. Disney+ ended its fiscal second quarter with 137.7 million subscribers, up 7.9 million from a year ago and better than estimates. Investors were keen to see those Disney+ numbers after Netflix last month reported a decline in paid subscribers for the first time in more than 10 years.

  • Disney’s fiscal second-quarter revenue rose 23% to $19.25 billion, helped by strong theme park sales. Revenue would have been $1 billion higher, if not for the early termination of some licensing agreements to make more content available for streaming. Disney reported adjusted earnings of $1.08 per share.

5. Beyond Meat plummets after wider-than-expected quarterly loss, revenue miss

Ethan Brown, founder, president and CEO of Beyond Meat.

Adam Jeffrey | CNBC

Beyond Meat shares tumbled 25% in Thursday’s premarket, the morning after the maker of plant-based meat alternatives reported a wider-than-expected quarterly loss and lower-than-expected revenue. The company cited a number of areas that were a drag on results, including steeper discounts and cheaper prices for international consumers and the launch of the company’s plant-based jerky, which weighed heavily on margins.

  • Looking to soothe investors, management said the just-reported first quarter is expected to be the low point for margins in 2022, and jerky production should be much more efficient by the second half of this year. Beyond Meat did reiterate its full-year revenue forecast of $560 million to $620 million.

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Categories
Markets

Inflation data does not ‘watershed moment’ for the stock market. Here’s what’s next.

Stock and bond investors expecting a “watershed” moment in Wednesday’s inflation data were left disappointed, analysts and economists said, leaving open the debate over whether the market is close to putting in a bottom.

The April consumer price index was certainly hotly anticipated, attracting the sort of pre-release scrutiny usually reserved for items like the monthly jobs report. Technical analyst Jeff deGraaf, founder of Renaissance Macro Research, called him one of the most hotly anticipated CPI reading in his more-than-30-year career.

And why not? Investors were looking for confirmation that inflation was finally cooling off after running at its hottest in more than 40 years — beyond the career memory of the vast majority of Wall Street veterans.

Moreover, the data was coming amid a selloff for stocks and bonds that’s been tough on investors in 2022 as they fret over the Federal Reserve’s ability to get a grip on inflation while avoiding the dreaded “hard landing” for the economy.

Read: Investors haven’t begun to price in recession: Here’s how far the S&P 500 could fall

Perhaps evidence of an inflation peak would help steady the ship, investors may have hoped, offering a clearer view on the path ahead for the Federal Reserve as it moves to jack up interest rates and shrink its balance sheet in an effort to rein in price pressures. .

See: Here are 4 reasons why market volatility is unlikely to subside soon, even after US inflation rate slows to 8.3%

In the end, the data was somewhat anticlimactic. Yes, inflation slowed, with the annual pace at 8.3% versus the March reading of 8.6%. But it was still plenty hot, and above expectations for a reading of 8.1%.

More problematic for investors was the core reading, which strips out volatile food and energy prices. It showed a 0.6% monthly rise versus a Wall Street forecast for a 0.4% increase. The increase in the core rate over the past year also slowed to 6.2% from a 40-year high of 6.5% in March.

Investors don’t seem that soothed. US stock-index futures immediately wiped out strong gains to turn lower ahead of the opening bell. Equities did bounce higher once cash trading opened, with energy stocks leading the way as oil prices surged, but analysts struggled to identify signs that investors were putting inflation worries behind them.

The Dow Jones Industrial Average DJIA,
-0.70%
was up 34 points, or 0.1%, while the S&P 500 SPX,
-1.14%,
which closedMonday at its lowest since March 31, 2021, below the 4,000 threshold, was off 0.5%. The Nasdaq Composite COMP,
-2.51%,
which fell into a bear market earlier this year, was down 1.7%.

Treasurys have also seen choppy trade, but signs of an inflection point that would mark a lasting pause or a significant reversal in the selloff that drove yields to 3 1/2-year highs this month were also lacking.

“So far, at least, tentative evidence of a peak in inflation in today’s US consumer price index report has not been a watershed moment for US government bonds or equities,” said John Higgins, chief markets economist at Capital Economics, in a note.

“We don’t expect their fortunes to improve decisively until shortly before the Fed stops tightening policy in summer 2023, even as inflation drops back further and the US economy experiences a ‘soft landing’ in the meantime,” he wrote.

The problem, analysts and investors said, is that while inflation may have peaked, the slowdown wasn’t sufficient to make clear what the Fed will have to do to get a grip on price pressures in the months ahead. The central bank last week hiked its fed funds rate by 50 basis points, or half a percentage point, the largest in more than 20 years — typically the Fed moves in quarter-point increments.

Fed Chairman Jerome Powell said half-point moves were on the table for the next two policy meetings, but poured cold water on speculation around the possibility of an even larger 75 basis point move. Now, some analysts are penciling in the potential for a change of tune that could put a three-quarter-point move back in the frame.

Also read: April’s CPI report puts 75 basis point Fed rate hikes on table at next few meetings, Jefferies says

“If inflation stays this hot, we expect the Fed to keep taking a hard stance on rate hikes. As we’ve seen, that may be a tough pill for investors to swallow,” said Callie Cox, US investment analyst at eToro, in emailed remarks.

She argued that with consumer and business demand still running strong, policy makers have room to stick to a “soft landing.” But stocks and crypto “may struggle to find a bottom until we see more evidence of the Fed’s control,” Cox siad. “This particular selloff could be closer to the bottom than the top. You just need to ride out the storm.”

Turning to the historical record, Higgins contended that it’s far from certain stocks or bonds would turn the corner even if data in coming months shows that inflation continues to slow. Their fortunes — and those of other assets — varied on four previous occasions since 1960 after high inflation in the US peaked, he noted, reflecting a combination of the Fed’s response, its effect on the economy, and their valuations (see chart below).

Capital Economics

The poor performance of 10-year Treasurys in the initial 12 months after inflation peaked in 1980 coincided with the adoption of even tighter Fed policy then, Higgins said, with their yield peaking in the summer of 1981, around the time that the federal funds rate began to be reduced from a peak of not far short of 20% earlier that spring.

“Similarly, the weak showing of US equities in the subsequent 12-month period after inflation peaked back then reflected the delayed influence of the even tighter Fed policy on the economy, which experienced a very deep recession between July 1981 and November 1982,” Higgins wrote.

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Categories
Markets

5 things to know before the stock market opens Wednesday, May 11

Here are the most important news, trends and analysis that investors need to start their trading day:

1. Futures turn lower after consumer prices remain at four decade highs

Traders on the floor of the NYSE, May 10, 2022.

Source: NYSE

US stock futures turned lower Wednesday after the first of two key April inflation reports this week showed consumer prices were still at 40-year highs. The data further raises concern that inflation will remain high as the economy slows. The producer price index for April is set release Thursday.

  • Wall Street saw a volatile session Tuesday, with the Dow Jones Industrial Average wiping out a 500-point gain, hitting a session-low down roughly 350 points before closing 84 points lower, a fourth straight down day.
  • The S&P 500 and the Nasdaq were able to close higher, breaking three-session losing streaks. Dow stock Disney is set to report earnings after Wednesday’s closing bell.

2. 10-year Treasury yield goes back above 3% on strong inflation data

Customers pushing shopping carts shop at a supermarket on April 12, 2022 in San Mateo County, California.

Liu Guanguan | ChinaNews Service | Getty Images

The 10-year Treasury yield popped back above 3% on Wednesday after the government’s April consumer price index rose to stronger-than-expected 8.3% year over year. Removing volatile food and energy prices, so-called core CPI still rose to a greater-than-expected 6.2%.

  • Inflation has been the single biggest threat to a recovery that began early in the pandemic and saw the economy in 2021 stage its biggest single-year growth level since 1984.
  • The big swings in financial markets recently reflect growing worries that the Federal Reserve continues to act too slowly to arrest the spike in inflation.

3. US oil prices advance after two days of sharp supply concern losses

A customer refuels at a Chevron gas station with prices above $4 a gallon in Seattle, Washington, US, on Monday, March 7, 2022.

David Ryder | Bloomberg | Getty Images

A source of inflation in the economy has been oil prices and in turn record-high gasoline prices. West Texas Intermediate crude, the American benchmark, rose about 3% to $103 per barrel Wednesday after back-to-back sharp declines.

  • The downturn in the two prior sessions was driven by supply concerns as the European Union works to gain support for a Russian oil embargo. A vote on the proposal, which needs unanimous approval, has been delayed as Hungary has dug in its heels in opposition.

4. Coinbase slumps after the crypto exchange turns in a weak quarter

Coinbase signage in New York’s Times Square during the company’s initial public offering on the Nasdaq on April 14, 2021.

Robert Nickelberg | Getty Images

Shares of Coinbase sank 20% in Wednesday’s premarket, the morning after the crypto exchange reported quarterly revenue dropped 27% to $1.17 billion, falling short of estimates. It also announced a quarterly loss of $1.98 per share. Coinbase noted a decline in users, with the digital currency market recently experiencing a major downturn. Bitcoin has lost more than 50% since its all-time high of more than $68,000 in November. It was lower again Wednesday morning, trading below $30,000.

5. Stablecoin UST, meant to be dollar pegged, plummets below 50 cents

The two main tokens from embattled crypto project Terra are now in free fall. UST, a so-called stablecoin that’s meant to maintain a 1-to-1 peg with the US dollar, plunged to as low as 31 cents Wednesday. Sister token luna dived more than 80% to $3.78.

  • Stablecoins are akin to bank accounts for the crypto economy, offering a sound store of value to avoid the kind of volatility cryptocurrencies like bitcoin have become notorious for — in theory, at least. While still new, UST has grown to become a major player in the crypto economy, with a circulating supply of 16 billion tokens.

— CNBC’s hannah miao, Jeff Cox, Samantha Subin, Sarah Min, patti domm, MacKenzie Sigalos and Ryan Brown as well as Reuters contributed to this report.

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