Main U.S. indexes tumble, post weekly losses
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DJI narrowly avoids bear market confirmation
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All 11 S&P sectors red; energy plunges 6.8%
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Dollar up; gold, bitcoin down; crude tumbles
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U.S. 10-Year Treasury yield ~3.69%
Sept 23 - Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at
WALL STREET TANKS, DOW FLIRTS WITH BEAR (1605 EDT/2005 GMT)
Wall Street skidded past the closing bell deep in negative territory on Friday as investors fled toward the weekend and away from risk at the end of a gruesome Fed week.
The blue-chip Dow came within a whisper of joining the other major stock indexes in confirming a bear market, finishing the session 19.6% below its all-time closing high reached just days into 2022.
For the week, to say all three lost ground is a bit of an understatement.
The blame for the week's wreckage can be laid at the foot of decades-hot inflation, which has prompted the Fed to impose a series of steep interest rate hikes in an effort to cool down the economy and rein in soaring prices, a tactic which has spread to other central banks around the world.
The policy tightening frenzy sent 2-year Treasury yields to 15-year highs and steepened the yield curve, a potential harbinger of looming recession.
All 11 sectors in the S&P 500 lost a lot of ground on Friday. Energy companies, ending down 6.75%, suffered the deepest plunge as crude prices slid to an eight-month low on dollar strength and demand worries.
With few other catalysts, aside from simmering geopolitical tensions, market participants can look forward to a data-heavy week, culminating next Friday in the Commerce Department's Personal Consumption Expenditures (PCE) report, which, alas, is expected to show core inflation grew even hotter last month.
Here's your closing snapshot:
ENERGY GAINS - ENOUGH TO TEMPT THE ESG CROWD? (1402 EDT/1802 GMT)
Despite a rocky ride over the past few weeks, the energy sector is one of the few sectors holding up amid a dour market climate, up about 27% year-to-date.
In comparison, the S&P 500 is down 22%.
However, for investors focused on environmental, social and governance (ESG) factors, it remains to be seen if these gains can tempt them to look back at stocks of oil companies.
"While fossil fuels stocks are having a resurgent 18 months, the longterm trend is certainly downward... in the short term, it is extremely volatile," Zach Stein, chief investment officer of Carbon Collective, told the Reuters Global Markets Forum.
Stein, whose firm focuses on investments in companies involved in mitigating climate change, says the majority of his clients recognize that ESG investments are a longer term game.
Still, funds tracking ESG-focused benchmarks have tumbled along with the rest of the market. Vanguard ESG U.S. Stock ETF has dropped more than the S&P 500, losing nearly 27%.
However, Stein points out that if an economic recession is on the cards -- a scenario many are expecting -- oil stocks could quickly fall from current peaks.
Indeed, data showed hedge funds around the world dropped positions in energy stocks, bonds and futures last week just in time to miss a drop in crude that sent oil prices to eight-month lows.
On the other hand, Stein hasn't written off Big Oil completely, saying he would include such companies in his portfolio if ESG pledges are matched by changes in investment and revenue streams.
"When Exxon generates more than 50% of its revenue from climate-friendly energy products, we'll excitedly invest in them," he added.
NEXT WEEK'S ECONOMIC GAUNTLET (1308 EDT/1708 GMT)
Market participants will be happy to close the books on this tumultuous Fed week scored by the crescendo of a looming recession, during which Powell & Co delivered yet another steep interest rate hike and dot plot suggesting a higher-than-previously-feared terminal rate, and a dimming economic outlook.
Fed Chair Powell reiterated, however, his vows that the central bank will remain agile, and that while no single data point will alter the central bank's course, they will remain data-responsive.
With that in mind, here's what's coming down the economic pike next week, the reports that are likely to give the Fed - and market participants - something to chew on as the next move is contemplated.
A quiet Monday will be followed by a busy Tuesday.
The Commerce Department's August durable goods report is on Tuesday, which covers new orders for everything from waffle irons to fighter jets.
Analysts see new orders contracting by 0.3%, accelerating from July's 0.1% decline. The closely-watched core capital goods number, a proxy for U.S. business spending plans, is expected to gain 0.2%.
This will be followed by Case-Shiller's 20-city composite home price index, expected to cool 1.7 percentage points to show a 16.9% annual increase.
Consumer confidence and new home sales round out Tuesday's roster.
Wednesday brings weekly home loan demand and mortgage rate data and the pending home sales index, two forward looking housing indicators and the Commerce Departments advance take on August trade balance (goods) and wholesale inventories.
The busy Commerce Department follows on Thursday with its third and final take on second quarter GDP, expected to hold firm at -0.6%, in addition to weekly jobless claims.
But saving the best for last, on Friday the Department of Commerce is due to unveil its wide-ranging personal consumption expenditures (PCE) report for August.
This mammoth data dump covers personal income, outlays, the savings rate - a gauge of consumer expectations and is one of Treasury Secretary Janet Yellen's favorite indicators.
But the star of the show will be the PCE price index, the Fed's preferred inflation yardstick. Economists currently see underlying, or "core" inflation accelerating to 0.4% from July and to 4.7% year-over-year. Any downside or upside surprise is likely to move markets.
The University of Michigan will be anticlimactic the closing act, with its final take on September consumer sentiment.
MIGHT EARNINGS SANDBAGGING LEAD TO SECOND-HALF SURPRISES? (1215 EDT/1615 GMT)
Steep swings in quarter-over-quarter earnings are often viewed negatively by investors as the way stocks react to earnings can be all about comparisons and expectations and less about the actual numbers.
As David Trainer, CEO of New Constructs, an investment research firm, sees it, companies are "incentivized" to do what they can to keep the earnings comparisons stable and positive.
With this in mind, Trainer believes that S&P 500 companies understated their earnings in the first half of 2022 to make second half earnings, which are at risk due to a worsening economy, look better by comparison.
"To support the narrative that earnings growth remains strong in an environment besieged by inflation and Federal Reserve rate hikes, we believe that many S&P 500 companies purposefully understated their earnings in the first half of 2022," Trainer writes.
As a result, he believes that second-half earnings, which are at risk of declines due to a weakening economy, will show improvement in comparison.
This suggests to him that CEOs are increasingly concerned about a recession, which is something he thinks the Federal Reserve is likely to cause due to the swift pace of its rate hikes as it tries to subdue inflation.
According to Trainer, the evidence for this earnings "sandbagging" lies in how earnings are calculated.
He notes that S&P 500 operating earnings, as calculated by S&P Global, fell below core earnings for the trailing-twelve months (TTM) ending in 2Q22.
Trainer says that core earnings is a much more accurate earnings calculation because it includes important data that many companies bury in the footnotes of financial filings.
He believes that since core earnings were higher than operating earnings in recent months that companies reported higher expenses or hid income in their footnotes so that they would be excluded from operating earnings and make their earnings look worse than they actually were.
"This subterfuge may seem counterintuitive, but with earnings set to decline in the second half of 2022 due to a weakening economy, companies prefer stability with earnings. Most investors are not aware that corporate managers have discretion as to which quarter to report certain expenses and income and can choose to recognize them now or later."
S&P 500 INDEX: IF JUNE LOWS GO, WHAT'S NEXT? (1139 EDT/1539 GMT)
With its 3,686.28 intraday low on Friday, the S&P 500 index , neared its 2022 bear-market lows. Since then, the benchmark index has managed to edge back up just slightly.
If the June lows give way, traders attention will likely turn to the rising 200-week moving average (WMA) next:
The S&P 500's June-16 close was at 3,666.77, while its June 17 intraday low was at 3,636.87. The 200-WMA now resides around 3,585, and is rising around 5 points per-week.
Of note, in the wake of the Financial Crisis, once reclaimed on a closing basis in late 2010, the 200-WMA has ultimately acted as significant support on a number of occasions.
In 2011, between mid-August and early-October, the SPX recorded three minor weekly closing violations of this long-term moving average. Ultimately, however, it acted as solid support amid November weakness that year, as the SPX was embarking on a major bull-run.
Then again in early 2016, the 200-WMA contained SPX instability leading to another major charge.
Amid the late-2018 market swoon, the SPX essentially grazed this moving average during the week it was forming its December low. A powerful advance then kicked off.
During the February-March 2020 pandemic panic crash there were, as in 2011, also three weekly closing violations of the 200-WMA, albeit more severe. Once it was reclaimed, however, the SPX was in the midst of another strong advance.
Thus, not including this week, in the 616 weeks since November 26, 2010, the SPX has only recorded six weekly closing violations of the 200-WMA (~1% of the time).
Meanwhile, even in the event of new SPX lows, traders will also be watching the weekly Relative Strength Index (RSI) for signs of a momentum convergence to see if the oscillator (now around 35.00) can bottom ahead of its May trough (at 23.062).
However, if the May RSI trough is taken out, the SPX may continue to find itself on the back foot given that the study's March 2020 and March 2009 lows were in the 9.7-15.2 area.
The 50% and 61.8% Fibonacci retracements of the S&P 500's March 2020-January 2022 advance are at 3,505.24 and 3,195.28.
Meanwhile, despite this week's slide, the VIX, at around 29.00, remains well below its 2022 highs - click here:
(Terence Gabriel)
SEPTEMBER FLASH PMI: LANGUID, WITH GLIMMERS OF COOLING INFLATION (1053 EDT/1453 GMT)
Here's a faint ray of sunshine for investors looking for good news as they stumble through the carnage toward the weekend: U.S. business activity is slightly more robust than expected this month.
The advance "flash" purchasing managers' indexes (PMI) formerly known as Markit (now S&P Global) shows unexpected acceleration of the manufacturing sector's modest expansion , while the contraction on the services side was shallower than anticipated.
Manufacturing and services landed at 51.8 and 49.2, respectively, aggregating to a composite print of 49.3.
A PMI reading of 50 is the dividing line between monthly contraction and expansion.
But as Chris Williamson, S&P Global's chief business economist points out, this is the third straight decline in the composite reading, and notches the worst quarterly decline since the pandemic lockdowns.
Still, fears of an economic swan-dive are overplayed.
"The rate of (output) contraction moderated compared to August ... allaying some concerns about the depth of the current downturn," Williamson writes.
And while falling input prices and easing supplier shortages support a post-peak inflation narrative, we're clearly not out of the woods yet.
"Inflation pressures ... remain elevated by historical standards," Williamson adds. "The surveys continue to paint a broad picture of an economy struggling in a stagflationary environment."
But how does U.S. Flash PMI square with the rest of the planet?
Below we see a comparison of U.S., euro zone and China manufacturing PMIs.
While the last available data point for China is August, the U.S. appears to be outperforming its international rivals by several key measures.
Most significantly, for inflation worry warts, the input prices metric has shed a significant 22.9 points over the last 12 months:
Wall Street is heading into the weekend in a sour mood, shooting for its fourth straight session in the red and on track for a weekly decline.
All three major stock indexes are sharply lower, with the S&P 500 approaching its June bear-market-confirming trough.
U.S. STOCKS' JUNE LOWS IN PLAY (0956 EDT/1356 GMT)
Wall Street's main indexes are under pressure early on Friday as investors fret over the prospect of an economic downturn and a hit to corporate earnings from the U.S. Federal Reserve's aggressive monetary policy tightening to quell inflation.
Of note, the S&P 500 index at just below 3,700, is now within 1% of its June-16 low close at 3,666.77 and within 2% of its June-17 intraday trough at 3,636.87.
In terms of S&P 500 sectors, amid building recession fears, energy is taking the biggest hit, with a 6% collapse. This as NYMEX crude futures are off more than 5%, after breaking below $80.00.
Meanwhile, the U.S. 10-year Treasury yield after spiking as high as 3.8290%, or its highest level since April 2010, has reversed. It is now up just slightly on the day at 3.72%.
Here is where markets stood around 25 minutes into the trading day:
CAN WE HOPE FOR A SANTA RALLY AT LEAST? (0915 EDT/1315 GMT)
It's been a brutal year for stocks. Wall Street is gearing up on Friday to test its June lows as investors flee risk assets amid growing bets of a recession in the face of the U.S. Federal Reserve's relentless fight to curb inflation.
It is currently also a seasonally weak period for stocks. Which raises the question - could investors at least hope for a small bump going into year end, when markets typically experience a "Santa Rally"?
Citi Research strategists address it, saying since a Fed pivot is, for now, out of the question, the focus for bulls is slowly shifting to whether the midterms and the improved seasonals in Nov-Dec can improve the equity outlook.
"We doubt it," they said.
Strategists said their charts show that the case for a Nov-Dec rally crucially depended on how strong the market has performed going into year-end. Only when Jan to October returns were strong has an year-end rally been in the cards.
"This year, Santa may not deliver."
Indeed, at 3,757.99, the S&P 500 has racked up 21% losses so far this year and Goldman Sachs expects it to slide further as it downgraded its 2022 target on Friday to 3,600. Its previous target was 4,300.
Wells Fargo economists predict a U.S. recession will begin in Q1 2023 with three consecutive quarters of decline in real GDP growth.
"Equity markets are unlikely to be able to look through falling estimates, as valuations typically contract into recessions," Citi strategists wrote in a note.
BEARS BIGGEST SINCE FINANCIAL CRISIS LOWS -AAII (0900 EDT/1300 GMT)
Individual investor pessimism over the short-term direction of the U.S. stock market has hit its highest level since 2009 in the latest American Association of Individual Investors (AAII) Sentiment Survey. With this, the level of optimism ranks among the 20 lowest in the survey’s history.
AAII reported that bearish sentiment, or expectations that stock prices will fall over the next six months, surged by 14.9 percentage points to 60.9%. Pessimism was last higher on March 5, 2009 (70.3%). (March 5, 2009 was one trading day ahead of the S&P 500's intraday low and two trading days ahead of its low close in the 2007/2009 Financial Crisis bear market).
Bearish sentiment is above its historical average of 30.5% for the 43rd time out of the past 44 weeks and is at an "unusually high level for the 28th time out of the last 36 weeks. The breakpoint between typical and unusually high readings is currently 40.5%."
Bullish sentiment, or expectations that stock prices will rise over the next six months, plunged by 8.4 percentage points to 17.7%. As noted above, this is among the 20 lowest readings in the survey’s history, which dates back to 1987. Optimism was last at a similar level in May.
Bullish sentiment remains below its historical average of 38.0% for the 44th consecutive week. Bullish sentiment is also "unusually low for the fourth consecutive week and the 27th time in 38 weeks. The breakpoint between typical and unusually low readings is currently 27.6%."
Neutral sentiment, or expectations that stock prices will stay essentially unchanged over the next six months, fell by 6.5 percentage points to 21.4%. Neutral sentiment is below its historical average of 31.5% for the 20th time in 22 weeks. It is also at an "unusually low level. The breakpoint between typical and unusually low readings is 23.1%."
With these changes, the bull-bear spread widened to -43.2% from -19.9% last week, and is "unusually low for the 29th time in 35 weeks. This week’s reading ranks among the sixth most negative in the survey’s history. The breakpoint between typical and unusually low readings is currently –10.9%":
Additionally, AAII said that "historically, the S&P 500 index has gone on to realize above-average and above-median returns during the six- and 12-month periods following unusually low readings for bullish sentiment and the bull-bear spread."
"Unusually high bearish sentiment readings historically have also been followed by above-average and above-median six-month returns in the S&P 500," AAII added.
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