Market sentiment remains depressed as global equities continue their recent sell-off and the USD remains in demand as investors increasingly price in “higher-for-longer” interest rates from the Fed (and also European central banks). We also see that investors are increasingly nervous about upcoming inflation data, which may show that inflation has warmed again due to higher energy prices.
The sell-off in the U.S. bond market has paused for now, which may provide some temporary relief to markets as the recent rise in yields has put significant pressure on growth stocks. However, the USD shows little sign of easing and the MSCI All Country World Index, one of the broadest measures of global equities, is on track for its longest losing streak in more than 13 years.
The threat of a new reality of higher interest rates for years to come is weighing on high-flying tech stocks. A handful of mega-cap tech stocks in particular have driven Wall Street to strong performance (even a record H1 performance). With higher interest rates, future earnings must be discounted, leading to profit-taking / price corrections in growth stocks whose value is driven by the expectation of strong and rising future earnings.
We continue to see increased pressure on expensive stocks (with high P/E ratios)/growth stocks – which are the most valuable companies in the US. This increases the risk of a sharp correction in the S&P 500 or Nasdaq 100. We have also heard more voices from Fed officials that further tightening may be necessary, and in general Fed officials are suggesting that there will be no rate cuts anytime soon. The market still expects rate cuts starting in 2024 and sharp rate cuts in 2025.
Analysts and markets are increasingly following our assessment of the current market and start to understand the macroeconomic headwinds. We see that there is still a lot of optimism priced in – which increases the risk of more selling at the end of this quarter/October.
Jamie Dimon, Chairman and CEO of JPMorgan Chase and one of the most listened voices, expressed the idea that U.S. interest rates could reach 7% – a worst-case scenario that could surprise consumers and businesses. While I think this is unlikely – but at the same time we see markets not really reacting to higher rates – this will add to concerns about higher rates for longer. In addition, concerns that the U.S. government will run out of money again causing a shutdown may create the perfect storm in the coming sessions.
We continue to see markets facing strong headwinds. Recovery attempts will lead to profit taking. Europe is trading much weaker today and weak Chinese markets and the Hang Seng continue to weigh on global market sentiment.
We continue to see oil prices under pressure on the expectation that interest rates will remain high for a long time, but we expect the rally to return soon – possibly if China increases fuel demand during the Golden Week.
The USD will remain in demand given the expectation that the Fed (dovish) pivot is a long way off and that the Fed is once again the most hawkish central bank.
👁 ROB'S MARKET OVERVIEW:
September 26, 2023
🇺🇸 US Markets ➡️/↘️ (market sentiment remains depressed)
Cyclical Stocks ➡️/↘️
Tech/Growth Stocks ➡️/↘️
Financial Stocks ↘️/➡️ (financials under pressure, but banks in solid position)
Defensive Stocks ➡️
Energy Stocks ➡️/↘️
Materials Stocks ↘️
USD ➡️/↗️ (USD remains in demand, even as yields temporarily ease)
EUR ➡️/↗️ (investors increasingly don't believe the ECB anymore regarding the recent dovish outlook)
AUD, CAD ➡️/↘️ (strong USD weighs on commodity prices)
CHF, JPY ➡️/↘️ (remain pressured from low rates / negative rates of SNB & BOJ)
⚒ Commodity Markets ↕️/↘️
Oil prices ↘️/➡️/↗️ (sees temporary headwinds on growth & rate hike concerns / stronger USD; oil remains bullish)
Natural Gas prices ↕️/↘️
Metal prices ↘️ (rate concerns / strong USD)
Precious Metal / gold prices ➡️/↘️ (high yields + strong USD continue to weigh on gold)
⚡️Cryptos ↘️ (high yields, strong USD & poor sentiment continue to weigh on cryptos)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)