Stocks rose, following three straight weeks of losses in Wall Street that sent the market near oversold levels.
(Bloomberg) — Stocks rose, following three straight weeks of losses in Wall Street that sent the market near oversold levels.
The S&P 500 rebounded from a slide that reached 1% earlier in the day. Treasuries slid across the curve, taking the 10-year yield above 3.3%. The Bloomberg Dollar Spot Index climbed to another record, while the Japanese yen tumbled to a fresh 24-year low against the greenback.
US shares gave up 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. Data showing the US service sector expanded at the fastest pace in four months just reinforced those Fed bets.
While economic uncertainties should still keep the equity market in “choppy waters,”, several indicators suggest the selling is getting overdone, according to Keith Lerner at Truist Advisory Services.
“Markets do not typically move in a straight line,” said Lerner. “Of course, oversold markets can get more oversold. Still, after advocating for trimming equities on strength, we would be less apt to do so now — at least over the short term.”
To Matt Maley at Miller Tabak + Co., any stock gains at this point should be seen as a short-term relief rally. He says traders should use those 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’s 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.
Fed Chair Jerome Powell leads a hefty lineup of central bankers offering their views in the final week before officials enter a blackout period ahead of the Sept. 20-21 policy meeting. The remarks will be weighed carefully for evidence of a tilt toward another 75 basis-point rate increase, or if there’s scope for the hiking pace to be dialed back.
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
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Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.4% as of 11:58 a.m. New York time
- The Nasdaq 100 rose 0.2%
- The Dow Jones Industrial Average rose 0.2%
- The Stoxx Europe 600 rose 0.2%
- The MSCI World index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.2% to $0.9911
- The British pound rose 0.3% to $1.1547
- The Japanese yen fell 1.7% to 142.93 per dollar
Bonds
- The yield on 10-year Treasuries advanced 15 basis points to 3.34%
- Germany’s 10-year yield advanced seven basis points to 1.63%
- Britain’s 10-year yield advanced 15 basis points to 3.09%
Commodities
- West Texas Intermediate crude rose 1% to $87.72 a barrel
- Gold futures fell 0.5% to $1,714.30 an ounce
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