LPL Financial’s Quincy Krosby said: “What appears to be the proverbial ‘sell now, ask later’ downturn in today’s market is exactly that: raise cash when uncertainty and volatility rise.
“Market levels from the Dow to the S&P 500 and over to NASDAQ, looks like they’re trying to dig deeper to find the point where all headwinds are discounted.”
Concerns over the US economic outlook, already clouded by this week’s revised Fed forecasts, were compounded by a shock budget from the UK’s new government.
Former Treasury Secretary Lawrence Summers has criticized the economic policies of newly installed British Prime Minister Liz Truss.
“I’m very sorry to say this, but I think the UK is behaving a bit like an emerging market that’s turning into a sinking market,” Summers told Bloomberg.
“Between Brexit, how far the Bank of England has come around the curve and now this fiscal policy, I think the UK will be remembered for having the worst macroeconomic policies of any major country in a long time.”
Gilded yields are rising
Ten-year gilt yields posted their largest one-day rise on record from Bloomberg data through 1989, closing 33 basis points higher at 3.83 percent on the day. The FTSE 100 Index fell 2 percent.
While the 10-year US yield was down 3 basis points to 3.68 percent at 3:08 pm New York, the two-year bond was at 4.20 percent.
The Australian Dollar briefly fell below US$65.25; the Bloomberg dollar spot index reset its record high and rose 1.3 percent around 3:10 p.m. in New York.
“We can expect continued market turbulence for some time to come,” said Brad McMillan, chief investment officer of the Commonwealth Financial Network.
Fundstrat Global’s Mark Newton said: “There is no sign of reversals yet to inspire confidence, but multiple days of negative breadth combined with poor sentiment and imminent cyclical reversals suggest trading bottoms are near.”
“The economy is already in a growth recession,” Ed Yardeni wrote in a note. “The yield curve spread has been negative for several weeks, indicating an outright recession. The odds of such an outcome have now increased as Fed officials appear to have concluded that this is the only way to bring inflation down.”
ASX futures were down 88 points, or 1.34%, to 6472 near 5:30am AEST
- AUD -1.8% to 65.27 US cents
- Bitcoin -3.5% to $18,710 near 5:35 AEST
- On Wall Street around 3:30 p.m.: Dow -2% S&P500 -2% Nasdaq -2.2%
- In New York: BHP -5.2% Rio -6.6% Atlassian -1.9%
- Tesla -5.1% Apple -2.1% Amazon -3.9% Chevron -6.7%
- In Europe: Stoxx 50 -2.3% FTSE -2% CAC -2.3% DAX -2%
- Spot Gold -1.6% to $1644.42/oz at 2:09 PM New York time
- Brent crude -5% to $85.92 a barrel
- Iron Ore +0.8% to $99.60 per ton
- 10-year yield: US 3.68% Australia 3.90% Germany 2.02%
- US prices as of 3:08 p.m. New York
The last defeat in US stocks took the S&P 500 below its bear market low in June – and then some buyers showed up.
This&P 500 fell 2.5 percent to 3663 around 12:30 p.m. in New York. It oscillated just a few points above this level as programmed buying halted the decline, at least temporarily.
Traders watching charts for signs of where the decline might taper had identified the June low as a potential area for support. A close below this level would wipe out all gains since late 2020.
While investors used to be positioned as if the economy was headed for a soft landing, that’s no longer the case, according to Anastasia Amoroso, chief investment strategist at iCapital.
“What the markets really need to do is price in a recession because it looks like weakness in the jobs market will end up costing so much,” she said on Bloomberg TV this week.
The market has been trading in a 3700-3800-4300 range for some time, she said.
“We may need to see a break below the bottom of this trading range to really find dirt cheap value in stocks,” Amoroso said. “We’re just not there yet, so the trade for now is to be defensive and get paid while you wait for that market bottom.”
Britain’s FTSE 100 hit a three-month closing low on Friday after Britain’s new Treasury Secretary Kwasi Kwarteng unveiled historic tax cuts and spending plans to boost the economy, but shook market sentiment as investor concerns mounted over a huge surge in borrowing.
Kwarteng announced an economic agenda aimed at taking Britain out of a cycle of stagnation and into a new era of higher economic growth – but with a hefty bill attached.
The international-focused FTSE 100 closed down 2.0 percent, the lowest since June 17. The index fell as much as 2.5 percent to hit a six-month low early in the session.
The domestically-focused FTSE 250 index also fell 2.0 percent, hitting nearly a two-year low.
A survey showed that UK companies’ downturn has deepened this month as they grapple with rising costs and flagging demand, highlighting the mounting risk of a recession.
“We are very cautious about cyclical stocks. We need to ensure the purchasing managers’ index hits bottoms and not the downtrend we are currently on,” said Roger Jones, London’s Head of Equities & Capital city.
Earlier data showed that UK consumer confidence fell this month to its lowest level since records began in the mid-1970s.
Oil and mining companies were the top detractors from the FTSE 100 as commodity prices fell on the back of a strong dollar.
Among individual stocks, Burberry fell 4.6 percent after the luxury group announced CFO Julie Brown plans to step down in April.
Gold headed for a second weekly decline after a number of central banks followed the Federal Reserve in raising interest rates to cool inflation.
Bullion slipped to its lowest level in more than two years on Friday as the dollar climbed to a record high.