By Jamie Chisholm
Critical information for the US trading day
So much for the security of the tech behemoths, those supposedly friendly giants who may be priced relatively well but who you can always rely on to shore up your wallet.
Poorly received results from Meta (META), Alphabet (GOOGL), Microsoft (MSFT) and Amazon (AMZN) et al saw nearly $1 trillion at one point cut from big tech valuations this week, according to the FT.
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But at least with the US midterm elections fast approaching on November 8, we surely have the politicians to help us. Well, not this time, says BlackRock’s analyst team led by Wei Li, global chief investment strategist.
Stocks tend to do well after U.S. midterms, they note, because stalemate is a common outcome, preventing policy shifts that could rattle the market.
However: “We see a bigger problem for equities than any potential upside from the midterm election outcome: a looming recession. We explained that central banks rushing to raise policy rates to bring inflation back to the target should crush the interest-rate sensitive parts of the economy first,” explains the BlackRock team.
They point to clear signs of damage already inflicted on housing, for example.
“As mortgage rates soar with the Fed’s aggressive rate hikes, the number of new housing starts is rapidly declining. the 1970s and early 1980s – as well as the denouement of the mid-2000s US housing boom (other colored lines),” they wrote in a note published this week.
According to BlackRock, any fiscal stimulus that may follow the middlemen could be counterproductive for the markets, as it would run counter to the Federal Reserve’s battle against inflation. This would come as debt levels are high and interest rates rise, a combination that could rekindle bond market vigilantes, just as was the case recently in the UK.
BlackRock says that after the midterms, political attention will shift to the economy, and in particular lawmakers will begin to express that they see greater danger in Fed tightening than in the impact of the Fed. ‘inflation.
“We see rate policy creeping into the politicization of everything with more and more voices beginning to speak out against the aggressive interest rate hike that is causing the recession. We see the Fed halting its hikes amid the economic damage and pressure to ease the tightening, but price pressures will persist, which is why we believe it will eventually have to live with some inflation,” says BlackRock.
Still, the Fed won’t pause “until the economic damage of the rate hike is clear. All of that outweighs any expected post-midterm stock gains, in our view… We’re underweight equities.” developed market equities,” concludes BlackRock.
S&P 500 futures fell 0.7% to 3,792 and Nasdaq 100 futures fell 1.2% to 11,098 as disappointing corporate earnings weighed on sentiment. The 10-year Treasury yield rose 8 basis points to 4.004%. Concerns over further COVID-19 shutdowns in China sent U.S. crude oil futures down 1.3% to $87.90 a barrel.
Amazon (AMZN) stock is down around 14% in premarket action and is expected to trade at its lowest level since April 2020 after the company forecast weak holiday sales after Thursday’s closing bell .
Apple (AAPL) shares rose about 1% after its post-close results contained no shocks, although it warned it faced headwinds from a strong US dollar.
The big oil companies dominate the earnings calendar on Friday, with Chevron (CVX) and Exxon Mobil (XOM) presenting their numbers. Chevron beat earnings estimates.
Elon Musk has completed his purchase of Twitter for $44 billion. According to reports, he promptly fired CEO Parag Agrawal and will assume the role on an interim basis. Tesla (TSLA) shares are down 1% ahead of the opening bell.
The euro fell back below parity with the dollar after the European Central Bank suggested on Thursday that the pace of future rate hikes would likely slow. The dollar also gained against the pound as traders awaited next Wednesday’s Federal Reserve decision on interest rates.
With that in mind, a big batch of data will arrive on Friday that could influence the Fed’s thinking. Arguably the biggest is the Personal Consumption Expenditure Group, or PCE, numbers for September, due out at 8:30 a.m. EST. At the same time, the third quarter employment cost index will be released along with the September real disposable income and real consumer spending reports.
Then, at 10 a.m., traders get the University of Michigan Consumer Sentiment Index and inflation expectations for October, as well as pending home sales for September.
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Analysts and investors on Wall Street may not openly declare stagflation, likely because the condition – high inflation during a recession – is stock market kryptonite. But as the two graphs below from Bank of America show, consumers certainly seem to have a stagflationary mindset. Forty-five percent of respondents believe a recession has already started, while 75% believe inflation will be high over the next 12 months.
“Over the past month, the BofA US consumer confidence indicator has fallen from a five-month high of 33.7% to a two-month low of 31.3% as of October 23. Consumers are concerned about the economy as inflation is not yet under control and recession fears are growing,” BofA’s data analysis team wrote.
Here are the most active stock tickers on MarketWatch as of 6 a.m. Eastern Time.
Ticker Security name AMZN Amazon.com TSLA Tesla AAPL Apple GME GameStop META Meta Platforms TWTR Twitter MULN Mullen Automotive AMC AMC Entertainment NIO NIO BBBY Bed Bath & Beyond
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