“Is the economy in control or is it spiraling out of control? This is the million dollar question traders keep debating,” summarizes cracked market blogger Jani Ziedins.
Clearly, the latter argument prevailed – yet again – after Wall Street’s worst day in two years and futures pointed to more pain for Thursday. Among the pessimists, Scott Minerd of the Guggenheim warned of a possible “summer of pain” – a 45% drop from the peak for the S&P 500 and 75% for the Nasdaq.
Lily: Markets haven’t acted like this since 1981 – and here’s how it happened
There is no doubt that Wall Street has lowered its stock market forecasts in recent months. On the optimistic side, always stoic JPMorgan equity strategist Marko Kolanovic said Bloomberg (in an interview before Wednesday) that equities will “come out of this hole” as fears of recession and stagflation are overblown.
Indeed, our call of the day Evercore strategists say markets are soaring thinking recession is inevitable. They also say the panicked, debt-ridden retail investors who were behind this sell-off should calm down soon as the pros aren’t scared (yet).
“Thursday we will get an idea if the market action is part of a volatile bottoming process, our base case, or if the decline could materially undermine SPX 3,854, triggering a capitulation trade,” the team notes. Evercore, led by Julian Emanuel. .
Offering their perspective on what happened with that selloff, Emanuel and the team say markets have been caught up in the Fed’s “hijacking,” rallying despite hawkish remarks from Chairman Jerome Powell, then giving it all back a day later, echoing what happened after the Fed meeting in early May.
What is key here is not whether markets understand the Fed’s intention, but “whether a recession in 2022-23 is avoidable in the fight against generationally high inflation, the only prior experience being tightening from the Volcker Fed (1971-81) to the point where multiple recessions were inevitable.
Emanuel and the team don’t think the Fed needs to rush a recession, but say stocks are behaving the way they are.
“The distinction is essential. The last three non-recession bear markets have fallen by an average of -21.3% – 2018 a “V” bottom, 2011 and 1998 a “W” – although none are recorded as an “official” bear. The last three recession bear markets (2020, 2007-09, 2000-02) have fallen by an average of -47.9%,” says Evercore.
Panicked investors, especially on the retail side (they’ve already been blamed), should calm down soon, he says.
Lily: A greater proportion of younger investors say they’re not afraid to buy the dip in pursuit of long-term gains – but there’s a big caveat
“We continue to expect from the Public (whose job prospects remain strong and
healthy balance sheets) liquidating its margin debt to give in to contrary signals/diversion of depressed sentiment and defensive professional positioning, stabilizing equities in the days ahead,” the strategists explain.
Cisco Systems CSCO,
is poised to open at its weakest level since late 2020 as COVID-19 lockdowns in China hurt its outlook.
After Walmart WMT,
and target TGT,
disappointing results this week, Kohl’s KSS,
is down on weak earnings and reduced guidance, a day after the departure of two executives. Bed bath and beyond BBBY,
shares also fell on Wednesday night’s low forecast.
Lily: Wednesday’s worst-performing stocks came mostly from this sector that investors are really worried about
Once a blue-chip hedge fund, Melvin Capital is closing its doors.
Thursday’s list of economic data features the latest weekly jobless claims report, as well as the Philadelphia Fed’s manufacturing report, existing home sales and leading indicators.
A case of monkeypox has been identified in Massachusetts, with authorities probing links to the rare disease from a series of outbreaks in Europe.
ES00 Equity Futures,
point to losses of nearly 1%, with Dow YM00 futures,
down more than 400 points, and bond yields TMUBMUSD10Y,
tumbling. CL00 oil,
is also falling, along with the dollar and the entire BTCUSD crypto space,
is a point of light.
Here are the most searched tickers on MarketWatch as of 6 a.m. EST:
Michel Kramer, founder of Mott Capital Markets, keep an eye out for a big name for Thursday – Apple AAPL,
– and advises investors to do the same.
“If this stock breaks the support at $139, it’s probably the whole stock market shutting down. That would create a lower low for Apple, a breach of the support and down to around $123. I don’t see how the whole market is not following Apple lower at this point,” Kramer said.
Japanese rural town’s COVID-19 relief money was mistakenly sent to a guy who bet everything.
Former President George W. Bush made a pretty big Freudian slip.
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