BNN Bloomberg's closing bell update: Dec. 8, 2022
Stocks climbed after a five-day slide, with traders awaiting key inflation figures for clues on whether Federal Reserve officials will be able to notch down their aggressive tightening campaign.
The rebound in the S&P 500 followed a rout that put the gauge on the cusp of breaching an important technical indicator: its average price of the past 100 days. Investors also assessed news that the U.S. Federal Trade Commission is seeking to block Microsoft Corp.’s US$69 billion acquisition of Activision Blizzard Inc. Treasuries fell, with 10-year yields hovering near 3.5 per cent. Oil hit a one-year low after earlier rallying on a pipeline outage.
Friday’s producer price index for November is one of the final pieces of data Fed policymakers will see before their Dec. 13-14 policy meeting. The PPI in October cooled more than expected. In the run-up to the numbers, a separate report showed some signs the labor market is cooling, with continuing jobless claims climbing to the highest since early February.
“Investors will have a lot to digest these next few days as they get a clearer picture of where we stand in the fight against inflation before the Fed decision,” said Mike Loewengart at Morgan Stanley Global Investment Office. “The market is largely expecting the slowdown in rate hikes to begin next week, but whether the pivot will be enough to steer the economy into a soft landing remains the question.”
Strategists from Morgan Stanley to JPMorgan Chase & Co. have warned investors against piling back into risk on hopes the Fed is getting close to pivoting to easier policy.
“Presumably if the Fed is pivoting this time around, it’s not for a good reason. It’s a deteriorating fundamental picture,” Joyce Chang, chair of global research at JPMorgan, told Bloomberg Television. “I mean, is that really a reason to be buying risk? I think it’s premature to say that there is a Fed pivot.”
Investor optimism that inflation has peaked is misguided as a potential spike in energy costs in 2023 could keep prices elevated and interest rates high, according to Goldman Sachs’ Peter Oppenheimer.
The bear market that mauled growth stocks this year now threatens the value stocks in the industrial, financial and energy stocks where investors sought refuge this year, according to Morgan Stanley’s chief investment officer Mike Wilson.
“The problem with the value stocks now is they’re probably just as vulnerable to the economic slowdown as the over-earning growth stocks were six or 12 months ago,” Wilson said.
At a time when virtually all of Wall Street is on guard against a recession, Jim Paulsen at Leuthold Group said stocks are about to rally at least 25 per cent in the next year. He predicts the S&P 500 will hit 5,000 in the coming 12 months — a far more bullish call than any provided by the strategists Bloomberg regularly surveys.
“The lows are in, and I think we are starting a new bull market,” Paulsen said. “The Fed is not the only policy driver in the room. There are others and a lot of those have already started to ease.”
Besides the 100-day moving average, the S&P 500 is trading near a key support at 3,900, a level that has provided the pivot point for reversals on multiple occasions this year.
As the equity market rebounded, the Cboe Volatility Index fell to around 22. Yet derivatives strategists at JPMorgan Chase & Co. say the VIX has further room to advance.
They expect the fear gauge to average at 25 next year, and see the gauge trading above that level in the first half of the year amid elevated monetary-policy concern before subsiding below the line in the latter part of 2023 when the central bank is expected to pivot its stance.
Heightened trader concern over an economic recession has recently pushed up the Cboe equities put/call ratio — the relative trading volume of loss-protecting contracts versus bullish ones — to elevated levels
That suggests there’s “too much pessimism,” according to Ed Yardeni, president of his namesake research firm. “It favors a year-end rally rather than a year-end crash.”
Meantime, Citigroup Inc.’s ultra-wealthy clients are plowing money into fixed income.
Family offices and rich clients have been snapping up bonds lately, said David Bailin, chief investment officer at Citi Global Wealth Investments, which manages about US$800 billion of customer assets. Bonds “deserve immediate attention” given expectations that 2023 will be one of the weakest years for global growth in the past four decades, the group said in a report Thursday.
Key events this week:
- US PPI, wholesale inventories, University of Michigan consumer sentiment, Friday.
Some of the main moves in markets:
- The S&P 500 rose 0.8 per cent as of 4 p.m. New York time
- The Nasdaq 100 rose 1.2 per cent
- The Dow Jones Industrial Average rose 0.5 per cent
- The MSCI World index rose 0.7 per cent
- The Bloomberg Dollar Spot Index fell 0.3 per cent
- The euro rose 0.5 per cent to US$1.0556
- The British pound rose 0.3 per cent to US$1.2239
- The Japanese yen was little changed at 136.67 per dollar
- Bitcoin rose 2.2 per cent to US$17,203.9
- Ether rose 3.8 per cent to US$1,278.78
- The yield on 10-year Treasuries advanced seven basis points to 3.48 per cent
- Germany’s 10-year yield advanced four basis points to 1.82 per cent
- Britain’s 10-year yield advanced five basis points to 3.09 per cent
- West Texas Intermediate crude fell 0.7 per cent to US$71.52 a barrel
- Gold futures rose 0.2 per cent to US$1,800.70 an ounce