Wall Street points to a slightly higher opening after a three-day selloff and at the end of a harsh week for investors that forced them to accept the idea that high rates are here to stay.
We see signs of a modest rebound with the S&P 500 trading currently 0.3% higher after yesterday's more than 1.6% decline – the worst daily performance since March. European stocks opened poorly but were able to trim losses. Asia was mixed, with Chinese markets performing well and Japan trimming sharp losses after the Bank of Japan didn't deliver more concrete details about an end of it's negative interest rates.
We see some dip buying after sharp losses but the outlook for “higher-rates-for-longer” and ongoing fight against inflation will continue to weigh on economic activity and limit gains for stocks in upcoming months. With bond yields being high and the USD strong, the attractiveness of the stock market as a whole remains blemished.
For now, analysts still expect that the US economy can remain resilient even with the Fed seeing the strong US economy as a sign that rates can stay higher for longer. If recession concerns return we may see stocks pushing further down sharply. PMI data from the Eurozone today showed that the major Eurozone economies, such as Germany and France continue to shrink quite rapidly.
The yen weakened after the Bank of Japan held interest rate as we have expected. Also the 10-year yield target and forward guidance remained unchanged opening the path for more JPY weakness. The central bank reiterated its expectation that inflation is decelerating.
With markets calming down and trying to make peace with the prospect of interest rates staying higher for longer, oil prices will continue to extend the recent rally. News that Russia would ban exports of diesel-type fuel and gasoline will increase supply deficit. However, European natural gas prices fell (temporarily) as Chevron and labor unions in Australia agreed to end strikes.
We expect some dip buying with overall limited trading volume but investors remaining cautious. Ongoing very high yields will continue to weigh on growth stocks and keep the USD on track to further gains against its peers. The prospect for the stock markets for the rest of the year is worsening resulting in rallies to hit profit taking.
👁 ROB'S MARKET OVERVIEW:
September 22, 2023
🇺🇸 US Markets ↗️/↕️
Cyclical Stocks ↗️/↕️
Tech/Growth Stocks ↗️/↕️/↘️
Financial Stocks ↗️/➡️
Defensive Stocks ➡️/↗️ (rotation growth to defensive continues)
Energy Stocks ↗️ (energy back in outperformance)
Materials Stocks ↗️
USD ➡️/↗️ (USD, CAD remain bullish)
GBP, JPY ↘️
⚒ Commodity Markets ↕️
Oil prices ↕️/↗️ (remains bullish – will rise once markets stabilize)
Natural Gas prices ↕️/↗️ (volatile, but remains bullish)
Metal prices ↕️ (benefiting from strong China today, overall rather bearish)
Precious Metal prices ↗️/➡️/↘️ (sees headwinds from high yields)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)