The S&P 500 could retest its June low in the coming week as stock markets suffer a brutal sell-off spurred by fears that the Federal Reserve’s inflation fight could trigger a recession.
A decision by the US central bank to raise interest rates by 75 basis points for the third consecutive time While signaling bigger gains on Wednesday, investors likely renewed their worries that a hard landing was coming, especially as monetary policymakers around the world followed suit in the last days.
“The chances of a soft landing are likely to diminish,” Fed Chairman Jerome Powell said in a speech after the policy was announced. “No one knows if this process will lead to a recession or, if so, how big that recession would be.”
US stocks dived friday, with the major averages posting losses in five of the past six weeks. The Dow Jones Industrial Average was down about 4% for the week, hitting a 2022 low after plunging into bearish territory during the session. The benchmark S&P 500 lost 4.6% over the same period, lurching near its June 16 low at 3,666.77. The main average closed at 3,693.23 on Friday. And the tech-heavy Nasdaq Composite posted a weekly loss of around 5.1%.
Recession concerns also extended beyond equities. On Friday, the rate-sensitive 2-year Treasury note surged to a new 15-year high of 4.2%, shortly after the 10-year Treasury yield rose above 3.7%, the highest since 2011. foreign exchange markets, The US dollar index jumped to the highest since May 2002 and in raw materials, oil prices have plunged below $80 at an eight-month low.
Bank of America’s Mark Cabana compared current market conditions to March 2020, when the COVID-19 pandemic upended the global economy — but without policy support.
“Central banks are not helping,” he said in a Friday note. “The market knows central banks will rise until something breaks.”
Cabana added that the Fed is “moving at the fastest pace in recent memory with maximum uncertainty over the macroeconomic outlook. To us, it feels like driving at 75 mph but not knowing which way the road is going to turn – an accident seems inevitable.
Investors will have a heavy portfolio of economic releases to ponder in the week ahead, including the latest gauges on PCE inflation – the Federal Reserve’s favorite inflation gauge – durable goods orders, new home sales and consumer confidence. The third estimate of gross domestic product (GDP), the broadest measure of economic activity, is also to be released.
Meanwhile, Wall Street is also bracing for what is expected to be a tough earnings season filled with economic warnings and downgrades to corporate forecasts.
“We believe earnings estimates for 2023 should continue to decline,” said a memo describing a discussion between Baird’s Ross Mayfield and Ryan Grabinski. “We have our chances of a 2023 recession at about 50% right now, and in a recession, earnings drop on average about 30%.”
“The consensus earnings estimate for 2023 is down just 3.3% from its June highs, and we believe these estimates will be revised down, especially if the odds of a 2023 recession increase. from here.”
Of the S&P 500 companies that held earnings calls from June 15 to September 8, 240 cited the term “recession” — the highest number citing the term since at least 2010, and well above the five-year average of 52, according to FactSet Research data.
Several key earnings announcements are in the lead in the coming week, with headliners like Bed Bath & Beyond (BBBY), Nike (NKE), Micron technology (MU) and Rite Aid (GDR) configured to report.
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Economic calendar
Monday: Chicago Fed National Activity IndexAugust (0.27 over the previous month), Dallas Fed Manufacturing Activity IndexSeptember (-12.0 expected, -12.9 in previous month)
Tuesday: Durable Goods OrdersAugust preliminary (-0.1% expected, -0.1% in previous month), Durable goods excluding transportAugust Preliminary (0.3% expected, 0.2% in previous month), Orders for capital goods excluding defense excluding aircraftAugust Preliminary (0.2% expected, 0.3% in prior month) Shipments of non-defence capital goods excluding aircraftAugust Preliminary (0.5% in previous month), FHFA Housing Price IndexJuly (0.1% expected, 0.1% in previous month), Composite S&P CoreLogic Case-Shiller 20 citiesmonth-over-month, July (0.20% expected, 0.44% in prior month), S&P CoreLogic Case-Shiller 20-City Compositee, YOY, July (16.90% expected, 18.65% in prior month), US National S&P CoreLogic Case-Shiller House Price Index (17.96 the previous month), Conference Board Consumer ConfidenceSeptember (104.3 expected, 103.2 in previous month), Current status of the Conference BoardSeptember (145.4 in the previous month), Conference Board ExpectationsSeptember (75.1 in the previous month), Richmond Fed Manufacturing IndexSeptember (-11 expected, -8 in previous month), Sales of new homesAugust (500,000 expected, 511,000 in previous month), Sales of new homesmonth-over-month, August (-2.2% expected, -12.6% in prior month)
Wednesday: MBA Mortgage Applicationsweek ended September 23 (3.8% over the previous week),Expected merchandise trade balanceAugust (-$88.5 billion expected, -$89.1 billion in prior month, revised to -$90.2 billion), Wholesale inventorymonth-over-month, August preliminary data (0.5% expected, 0.6% in previous month), Retail inventorymonth-over-month, August (1.1% over the prior month), Door-to-door sales pendingmonth-over-month, August (-0.8% expected, -1.0% in prior month), Home sales pending NSAyear-over-year, August (-22.5% over the prior month)
Thursday: Initial jobless claimsweek ended September 24 (220,000 expected, 213,000 the previous week), Continuing claimsweek ended September 17 (1.379 million in the previous week), Annualized GDPquarter-on-quarter, Q3 Q2 (-0.6% expected, -0.6% before), Personal consumptionquarter-over-quarter, third quarter of 2nd quarter (1.5% expected, 1.5% before), GDP price indexquarter-on-quarter, Q3 Q2 (8.9% expected, 8.9% before), Basic PCEquarter over quarter, Q3 Q2 (4.4% expected, 4.4% before)
Friday: Personal incomemonth-over-month, August (0.3% expected, 0.2% in prior month), Personal expensesmonth-over-month, August (expected 0.2%, 0.1% prior month), Actual personal expensesmonth-over-month, August (0.2% expected, 0.2% in prior month), PCE deflatormonth-over-month, August (expected 0.1%, -0.1% in prior month), PCE deflatorYoY, Aug (6.0% expected, 6.3% in prior month), Basic PCE deflatormonth-over-month, August (0.5% expected, 0.1% in prior month), Basic PCE deflatorYoY, Aug (4.7% expected, 4.6% in prior month), IMN Chicago PMISeptember (51.8 expected, 52.2 in previous month), University of Michigan Consumer Sentiment, September final (59.5 expected, 59.5 before)
PCE deflatormonth-over-month, May (0.7% expected, 0.2% in prior month), PCE deflatoryear-over-year, May (expected 6.4%, 6.3% in prior month), Basic PCE deflatormonth-over-month, May (0.4% expected, 0.3% in prior month), Basic PCE deflatoryear-on-year, May (4.8% expected, 4.9% in prior month), IMN Chicago PMIJune (58 expected, 60.3 in previous month)
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Earnings Calendar
Monday: No notable reports scheduled for publication.
Tuesday: Blackberry (BB), Cal-Maine Foods (CALM), Cracker Barrel (CBRL), Jabil (JBL)
Wednesday: Cinta (ETG), Jefferies (I F), Miller Knoll (MLKN), Paychex (PAYX)
Thursday: Bed bath and beyond (BBBY), Micron technology (MU), Nike (NKE), Carmax (KMX), ritual aid (GDR)
Friday: Carnival (CL)
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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