A recap of the past week in 3 short headlines.
1. Down Goes Market
In the past week, both the S&P 500 and NASDAQ experienced a negative trend, marking their third consecutive week of decline, primarily influenced by sharp declines following the latest U.S. Federal Reserve meeting. As anticipated, the Federal Reserve maintained its benchmark interest rate but signaled an intention to keep rates elevated well into 2024, contrary to previous forecasts. Projections revealed that 12 out of 19 officials are in favor of another rate hike before the year’s end. U.S. government bond yields witnessed a temporary retreat on Friday after hitting their highest levels in over a decade, with the 2-year U.S. Treasury bond yield surging to 5.20% intraday, the 10-year yield reaching 4.49%, and the 30-year yield jumping to 4.59%. The Cboe Volatility Index, gauging short-term U.S. equity market volatility expectations, saw a significant 25% surge, signaling a reversal from its recent decline, although it remains below its year-end 2022 level. Japan’s central bank opted to maintain its main interest-rate targets, expressing concerns about potential deflationary risks if monetary policy tightens prematurely, and keeping the benchmark short-term interest rate in negative territory, a status maintained since 2016. The Bank of England chose to keep its benchmark interest rate unchanged after a series of 14 consecutive hikes, following a slowdown in the steep inflation rate, which fell to an annual 6.7% rate in August. Japan’s yen experienced a notable weakening against the U.S. dollar this year due to Japan’s accommodating monetary policies versus the U.S.’s higher interest rates, with a year-to-date fall of approximately 12%, reaching the widest gap in interest rates between Japan and the U.S. in 22 years. A forthcoming report is expected to reveal whether the recent interruption in the decline of inflation persisted into August, as the Personal Consumption Expenditures Price Index, the Federal Reserve’s favored measure of price tracking, indicated a rise of 3.3% in July, a reversal of the prior months’ downward trend. Investors should stay vigilant and monitor the evolving market dynamics closely amidst these notable shifts in global interest rate policies and market trends.
Goldman Sachs Group Inc.’s Scott Rubner, a seasoned analyst with two decades of experience, issues a cautionary note as the two-month selloff in U.S. stocks shows potential for further intensification. The market faces headwinds from options dealers and fast-money traders aligning against it. With key indexes like the S&P 500 breaching critical levels, there’s a looming risk of systematic funds being compelled to unwind equity positions. Rubner estimates that commodity trading advisers, engaged in momentum-based futures trading, could divest $48 billion worth of global stocks over the next week, even if market benchmarks remain steady. Currently, market makers find themselves bound to follow the prevailing equity trend, magnifying price fluctuations. This situation, known as ‘short gamma,’ has hit its most extreme level since Goldman began tracking the data in 2019. Rubner emphasizes the current market’s lack of rules, where flows take precedence over fundamentals, especially in the ultra-short term. Despite Wednesday’s recovery, the S&P 500 has shed nearly 7% from its 2023 peak, attributed in part to the Federal Reserve’s commitment to maintain higher interest rates. The index has also lost support at its 50-day and 100-day averages. As the market continues to navigate this unpredictable terrain, investors should remain vigilant and adapt their strategies accordingly.
As U.S. markets approached Thursday, futures showed a mixed picture. S&P 500 and Dow Jones futures edged slightly higher, while Nasdaq 100 futures held steady. The Federal Reserve’s commitment to prolonged higher rates has stirred market uncertainty, though stocks seem to be finding their footing after recent steep declines. The 10-year Treasury yield’s rapid ascent, now hovering at levels not seen in over 15 years at 4.63%, exerts additional pressure. The surge in oil prices, up over 35% since June, poses a challenge to inflation control efforts and potential rate cuts. Oil prices retreated slightly on Thursday, with West Texas Intermediate futures falling to $93.50 a barrel after reaching $95 earlier. Brent crude futures also dipped to $96.09 after nearing $97. Investors are closely monitoring updates on second-quarter GDP and jobless claims. The upcoming highlight is the reading on PCE inflation, the Fed’s favored gauge, with some speculating that persistent price increases may not be the primary driver for central bank action, but rather robust consumer spending and a red-hot economy. In individual stocks, Micron saw a nearly 5% premarket decline as the chipmaker anticipated a wider first-quarter loss. Meanwhile, CarMax, GameStop, and Peloton made significant moves in premarket trading. With market dynamics in flux, investors are advised to stay attuned to the evolving landscape.
In the past week, both the S&P 500 and NASDAQ experienced a negative trend, marking their third consecutive week of decline. This was driven by sharp declines following the latest U.S. Federal Reserve meeting, where it signaled an intention to keep interest rates elevated into 2024, contrary to previous forecasts. Additionally, U.S. government bond yields saw a temporary retreat after reaching their highest levels in over a decade.
Goldman Sachs Group Inc.’s Scott Rubner, with two decades of experience, warns of a potential intensification in the ongoing selloff in U.S. stocks. He highlights concerns of systematic funds being forced to unwind equity holdings, especially with key indexes like the S&P 500 breaching critical levels. Market dynamics, driven by options dealers and fast-money traders, pose further challenges.
As U.S. markets approached Thursday, futures showed a mixed picture, with S&P 500 and Dow Jones futures slightly higher, while Nasdaq 100 futures remained steady. The Federal Reserve’s commitment to prolonged higher rates has introduced uncertainty. The rapid rise in the 10-year Treasury yield adds additional pressure, as does the surge in oil prices, which are up over 35% since June. Investors are closely monitoring updates on second-quarter GDP and jobless claims, as well as the reading on PCE inflation. Micron anticipates a wider first-quarter loss, influencing individual stock movements.