Investment Banks Sour On Economy and Markets – (Wall Street Cheat Sheet)

S&P 500 10-3

As we warned readers, the month of September is living up to its terrible reputation on the stock market, with losses approaching 8% in the United States and Europe.

Investors remain pessimistic despite rising prices and aggressive monetary policies: this week has been particularly unpleasant. Indexes have been crushed, and safe haven assets are becoming scarce (FYI, cash is paying at the bank for the first time in years).

The Bank of England’s emergency decision to buy back British debt was undoubtedly the most famous occurrence. The announcement of a costly mini-budget to assist the economy devised by the new Truss administration, which featured significant tax cuts, destabilized the market.

This expenditure did not go over well with investors when interest rates are increasing to combat inflation. The multiple headwinds continue to weigh hard on the stock market.

Investors would be happier if they did not have equities in their portfolios! The market downturn affected all sectors and capitalizations equally.

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Over the last two weeks, investment bank research has been noticeably sour. “More pain ahead” is the overarching theme, filled with specific warnings about an impending financial collapse.

This is not restricted to a few institutions; Bank of America, Barclays, Credit Suisse, Citi Bank, Deutsche Bank, Goldman Sachs, JP Morgan, Societe Generale, and others are all stating something similar.

Analysts at Goldman Sachs Portfolio Strategy Research stated that US markets have yet to bottom and are awaiting four indications to do so: 1) low valuations, 2) stalled growth, 3) inflation peaking, and 4) investors more strongly positioned out of the market.

Goldman stated that none of these market indicators are currently present, signaling lower lows in the coming weeks or months.

Speaking of inflation, Truflation shows inflation at 8.68%. It is down from the peak.

BlackRock reported, “Many central banks [including the Fed] aren’t acknowledging the extent of recession needed to rapidly reduce inflation. Markets haven’t priced that so we shun most stocks.”

We could continue, but you get the message that the markets are looking like DOOM and GLOOM.

Right now, 2023 is looking very BEARISH, but there may be some opportunities if we wait and look in the right spots.

Remember that with the rain comes to the sun, so maintain a level mind and play the long game.

KEY EVENTS & CALENDAR

  • Monday, October 3 – ISM Manufacturing PMI (September)
  • Friday, October 7 – Unemployment Rate (September)
  • Gov’t Shut Down?
  • Fed Talk
  • Iran Protests
  • Russia Ukraine War – Peace or Nukes?

Looking ahead to next week’s events, there is a full slate of Federal Reserve Bank speakers, with the widespread assumption that the central bankers would emphasize the objective of not withdrawing from restrictive monetary policy and higher interest rates too soon.

The September employment data, due at the end of the week, will be the highlight of the economic calendar.

Prior to that, on Tuesday, there will be the JOLTS job vacancies survey and the ADP nonfarm payrolls report (Thursday). Investors will also be watching the precise minutes of the most recent ECB meeting, which will be issued on Thursday.

A higher unemployment number may tell the Fed that the rate increases are working. I believe the Fed wants to see a 5%+ rate of employment before they stop increasing rates.

The flurry of investor meetings for stock pickers includes presentations by Sinclair Broadcast Group (SBGI), Illumina (NASDAQ: ILMN), Duke Energy (NYSE: DUK), Hasbro (NASDAQ: HAS), and Box (NYSE: BOX). Keep an eye out for updates from Google (GOOGL), which has a Pixel hardware event scheduled.

MARKET STORIES

We try to pull a few headlines that could or did influence the markets, specific sectors, or stocks.

The latest Chinese push to avoid US delistings falls short.

Before the US and China struck a preliminary agreement providing the PCAOB access to Chinese businesses’ audit data, several corporations attempted to comply with the rules and escape required delisting at the end of 2023 by simply employing US accounting firms.

So yet, neither the United States nor China appears to be impressed by this strategy. Officials in the United States pointed out that hiring American auditors is pointless if the auditors cannot examine all of the relevant information.

The Eurozone is likely to enter a recession as price increases reduce demand.

The preliminary September purchasing managers’ index for eurozone manufacturing and services fell below 50, indicating contraction, adding to worries of an oncoming recession. This composite index combining the two sectors has been contracting for three months in a row, with Germany suffering more than France (the only two nations included in this early read).

With eurozone equities in a bear market (usually a sustained and fundamentally driven loss of more than -20%), with Germany down more than many of its neighbors, there is a significant possibility that economic deterioration has already been reflected in stock prices. If Europe has a recession, it may be a relief if conditions are not as terrible as expected.

US Gov’t Shutdown?

Congress is once again racing to avoid a government shutdown, as a critical vote is on the verge of failing. So, before we begin, please remember that AlphaBetaStock.com does not favor any candidate or political party and evaluates developments only for their possible market impact.

If a new funding measure is not passed by Friday midnight, we could be looking at a shutdown.

Neither party wants to be blamed for a shutdown, especially soon to the high-stakes November midterm elections, in which both Democrats and Republicans attempt to persuade voters that they should be in the majority.

Lastly, many politicians are likewise eager to conclude their duties on Capitol Hill so they may campaign in their home states.

RATES

The bond market is jittery. Government bond rates rose earlier this week in response to releasing a pro-growth budget in the United Kingdom while the Bank of England works to battle inflation. The market was perplexed by the Truss administration’s initial moves.

To prevent causing an earthquake for British pension funds, the Bank of England was obliged to act by beginning a gilt buying program.

The interest rate on a 10-year debt is 3.70 percent in the United States, 4.04 percent in the United Kingdom, and 4.53 percent in Italy. Germany (2.10%) and France (2.71%) perform better.

COMMODITIES

OIL

The environment remains heavy on oil markets, which rebounded at the conclusion of the week. Fears of a recession continue to weigh on the WTI, which has fallen below USD 80 and is presently trading around USD 82. Brent, the European benchmark, fell to USD 84 and is now trading at USD 88 per barrel.

All eyes are now on OPEC+, which will meet next week and is anticipated to cut output objectives even more to sustain prices. According to early reports, Russia has recommended a total decrease of one million barrels per day for the entire extended cartel.

While this reduction is considerable, it should be noted that OPEC+ is producing much below its output limitations.

At the same time, Hurricane Ian created substantial disruptions in the Gulf of Mexico, resulting in a loss of somewhat more than 10% in regional oil output. Natural gas prices in Europe rose due to the sabotage of Nord Stream 1 and 2. The Rotterdam TTF is now trading at much above EUR 200/MWh.

GOLD & PRECIOUS METALS

After losing ground all week, base metal prices surged Thursday as the London Metal Exchange (LME) allegedly planned to exclude Russian metals from its vaults. Copper is trading at roughly USD 7550 per metric ton, while aluminum is trading at around USD 2200. Gold is back in the black at USD 1,670 per ounce, and silver is at USD 19.15.

CRYPTOCURRENCY

Bitcoin has been trending slightly upward since the beginning of the week and is now trading at about $19,500. The digital currency is set to close at its lowest level since the beginning of the year in September, down 3% from the previous month.

On the other hand, it has declined less this month than US stock market indices. But, for the time being, in an uncertain macroeconomic environment, positive triggers indicating a sustained upward comeback are few in the digital assets market.

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