Latest News

The Era of Inflation Has Ended — for Asset Prices on Wall Street

0

S&P Futures

3,756.25

-15.75(-0.42%)

 

Dow Futures

30,028.00

-121.00(-0.40%)

 

Nasdaq Futures

11,514.25

-51.25(-0.44%)

 

Russell 2000 Futures

1,718.20

-9.60(-0.56%)

 

Crude Oil

82.28

-1.21(-1.45%)

 

Gold

1,674.00

-7.10(-0.42%)

 

Silver

19.56

-0.06(-0.29%)

 

EUR/USD

0.9768

-0.0070(-0.71%)

 

10-Yr Bond

3.7080

0.0000(0.00%)

 

Vix

27.59

-0.40(-1.43%)

 

GBP/USD

1.1170

-0.0084(-0.75%)

 

USD/JPY

142.3990

+0.0640(+0.04%)

 

BTC-USD

19,219.71

+289.46(+1.53%)

 

CMC Crypto 200

441.83

+14.31(+3.35%)

 

FTSE 100

7,122.56

-36.96(-0.52%)

 

Nikkei 225

27,153.83

-159.30(-0.58%)

 

The Era of Inflation Has Ended — for Asset Prices on Wall Street

(Bloomberg) — As the Federal Reserve’s intensifying fight against inflation sinks every asset on Wall Street, investors are asking: Why buy now when things could get cheaper still?

Most Read from Bloomberg

Japan to Restore Visa-Free Travel From Oct. 11 as Covid Pandemic Recedes

South Korea President Caught on Hot Mic Insulting US Congress

Unless Rents Rise, Housing Is Set Up for an Epic Crash

A Great Copper Squeeze Is Coming for the Global Economy

Putin’s Order for 300,000 Fighters Drives Russians to the Streets in Protest

What started as a mild stock selloff this month has morphed into a deepening interest rate-spurred rout that’s wiped out virtually all of the summer gains in the S&P 500. Mouth-watering yields on corporate debt haven’t been enough to entice buyers while investors are increasingly parking their money in cash, waiting for more central bank-inflicted pain on the economy — and a better buying opportunity. At the same time, the Citrix Systems Inc. debt debacle highlights the tighter climate for capital-raising for Corporate America, darkening the outlook for indebted companies in the stock market.

All this comes at a bad time for companies facing shrinking profit margins. Stock valuations, while below multiyear highs, may have further to fall after the S&P 500 doubled from the pandemic bottom. And even with nominal Treasury yields at the loftiest levels in over a decade, inflation-adjusted rates have scope to climb even higher.

Jerome Powell and his Fed colleagues won’t be upset with the sharp drop in asset prices. They’ve spent the past six months, at first subtly and then directly, saying that inflation can’t come down until the excesses in financial markets ease. Since the central bank began tightening in March, 10-year yields have jumped more than 1.5 percentage points, stocks have plunged 20% and junk-bond spreads are wider by about 90 basis points. More pain is likely.

“The message from the Fed is that ‘We’re going to keep hiking until something goes wrong,’” Bespoke Investment Group Global Macro Strategist George Pearkes said. “The fact that nothing’s broken yet tells us we’re not done. If the Fed is in that mood, how are markets supposed to bottom?”

With the S&P 500 falling a third straight day Thursday, following the worst performance on a Fed day since January 2021, it appears that investors are finally heeding the central bank’s message: After the era of peak monetary stimulus, asset-price disinflation is a necessary byproduct of cooling price pressures in the broader economy.

Minneapolis Fed President Neel Kashkari said as much in late August, commenting that he was “happy” to see the market’s rout in response to Powell’s Jackson Hole speech, where Chair Jerome Powell hammered home that the central bank was committed to stamping out inflation.

Powell repeatedly referenced the labor market at Wednesday’s press conference, noting that its strength remains “out of balance” as policy makers seek to get a grip on the hottest inflation in a generation.

After breaking a three-month straight streak of outflows in August, more than $5 billion has been drained from US equity exchange-traded funds, Bloomberg data show. Meanwhile, the more speculative corners of the market are being punished. A Goldman Sachs basket of nonprofitable tech companies has plunged 12% so far in September, on track for its worst monthly performance since May.

“If there are more aggressive sellers and less aggressive buyers, that supply-demand imbalance is going to cause some disinflation in equity prices for sure,” Art Hogan, chief market strategist at B. Riley, said in a phone call. “And to the extent that that’s what we’re going through now, it’s similar to demand being diminished for other things.”

All the same, while prices continue to decline across asset classes, there are no big signs of investor panic like forced liquidations or systemic stress. Financial conditions — a cross-asset measure of market stress — are closer to levels they were leading into the Fed’s kickoff hike in March. While credit issuance has slowed, investment-grade companies are still broadly capable of tapping primary markets, albeit at a price.

Against that backdrop, it makes sense to hold out and wait for bigger bargains with the Fed on a warpath, according to Kim Forrest at Bokeh Capital Partners.

“The Fed has laid out this strategy for killing inflation and it looks like it’s going to kill the economy too. And that is why we have a buyers strike,” Forrest, the firm’s founder and chief investment officer, said in an interview. “The whole thing is I sat there this morning looking over things I want to buy and my big question is this: are they going to be cheaper next month? And the answer is maybe. Maybe.”

Most Read from Bloomberg Businessweek

The Sneaky Genius of Apple’s AirPods Empire

This Is What Life’s Like in the World’s Strictest Covid Zero City

Wall Street’s Bosses Reassert Themselves With the Return of Annual Culls

No One Likes Annual Performance Reviews—Here’s How to Get Rid of Them

The $8.6 Billion Startup That Helps Governments Trace Crypto

©2022 Bloomberg L.P.

Advertisement

Bloomberg

Goldman Slashes S&P 500 Target Citing Higher Fed Rates Path

(Bloomberg) — Goldman Sachs Group Inc. slashed its year-end target for the S&P 500 Index to 3,600 from 4,300, arguing that a dramatic shift in the outlook for interest rates moving higher will weigh on valuations for US equities.Most Read from BloombergJapan to Restore Visa-Free Travel From Oct. 11 as Covid Pandemic Recedes South Korea President Caught on Hot Mic Insulting US CongressUnless Rents Rise, Housing Is Set Up for an Epic CrashA Great Copper Squeeze Is Coming for the Global EconomyPut

The Wall Street Journal

Audits of Chinese Companies Start to Face U.S. Inspections

The Public Company Accounting Oversight Board is to determine whether Alibaba, Yum China and other firms can keep their listings on American stock exchanges.

Yahoo Finance Video

Microsoft CEO confident in regulatory approval of Activision-Blizzard purchase

Yahoo Finance tech editor Dan Howley breaks down Microsoft CEO Satya Nadella’s recent comments about the company’s acquisition of Activision and also Microsoft Viva reporting a jump in work meetings and user productivity.

Bloomberg

Rothschild Moves Top Hong Kong Banker to Dubai Amid IPO Boom

(Bloomberg) — Sign up for our Middle East newsletter and follow us @middleeast for news on the region.Most Read from BloombergPutin Calls Up More Troops, Resumes Nuclear Threat Over UkraineUkraine Seizes Dozens of Russian Tanks Left by Fleeing ForcesPowell Signals More Pain to Come With Fed Sending Rates HigherA Great Copper Squeeze Is Coming for the Global EconomyA Decision Tree for Biden If Putin Goes NuclearRothschild & Co. is moving its head of equity advisory for Asia to Dubai as it tries

Bloomberg

Citigroup Sets India as High Priority Market Amid China Risks

(Bloomberg) — Citigroup Inc. is targeting India as one of its top markets to expand in globally as risks mount in China and other regions, the bank’s global co-head of investment banking said.Most Read from BloombergJapan to Restore Visa-Free Travel From Oct. 11 as Covid Pandemic Recedes South Korea President Caught on Hot Mic Insulting US CongressUnless Rents Rise, Housing Is Set Up for an Epic CrashA Great Copper Squeeze Is Coming for the Global EconomyPutin’s Order for 300,000 Fighters Drive

TipRanks

J.P. Morgan Says Stock Market Downside Risk Is Limited; Here Are 3 Stocks to Consider

A strong bearish trend defined the markets in the first half of the year; since then, the key point has been volatility. Stocks hit a bottom back in June, when the S&P 500 dropped into the 3,600s. That has proven to be a support level in the last three months, and at least one strategist believes that the market won’t go much lower from here. JPMorgan global market strategist Marko Kolanovic is taking a guardedly optimistic view of the coming year, noting: “We believe that any downside from here

The New York Times

Presidential Power to Declassify Information, Explained

WASHINGTON — Former President Donald Trump’s repeated claim that he had declassified all the documents that the FBI seized in the search of his Florida home last month — including those marked as top secret — has heightened interest in the scope of a president’s power to declassify information. In an interview on Fox News that was broadcast Wednesday, Trump insisted that he “declassified everything.” There does not have to be a formal process to do so, he added, because “if you’re the president

The Hill

Warnock holds 2-point lead over Walker in Georgia: survey

Sen. Raphael Warnock (D-Ga.) is currently holding a 2-point lead over Republican challenger Herschel Walker in the latest CBS News-YouGov poll. The poll, published on Wednesday, found that 51 percent of respondents supported Warnock, who defeated former Sen. Kelly Loeffler (R) in a special election last year, compared to 49 percent for Walker, who has the…

Reuters

Japan is chasing its tail on yen intervention

As the Bank of Japan steps into currency markets for the first time in decades to defend a battered yen, it is running into numerous obstacles, chiefly its own stubborn commitment to ultra-easy monetary settings. Thursday’s sudden burst of yen-buying intervention by Japanese authorities — the first instance since 1998 – caused a large 6 yen move between 140 and 146 in the dollar-yen exchange rate. At the end of the busy day, which also saw markets digest a hawkish Federal Reserve rate rise and a BOJ pledge to keep rates negative, investors were no less bearish on the yen, which has depreciated nearly 20% so far this year.

Top Natural Gas Stocks for Q4 2022

Previous article

Cassava Rockets After SEC Reportedly Clears It Of Tampering With Alzheimer’s Data

Next article

You may also like

Comments

Leave a reply

Your email address will not be published.

More in Latest News