Following three consecutive weeks of losses on Wall Street that brought the market close to oversold levels, stocks fluctuated.
The S&P 500 remained relatively unchanged from a drop of up to 1% earlier in the day, but the tech-heavy Nasdaq 100 lagged behind. The yield on 10-year Treasuries has surpassed 3.3% due to a decline throughout the curve. The Bloomberg Dollar Spot Index reached a new high point.
As a result of the Federal Reserve’s indication that it will maintain its hawkish stance in the face of the highest inflation in four decades, U.S. equities surrendered over half of their June rise. These Fed wagers were bolstered by data indicating that the US service sector grew at its strongest rate in four months.
Despite the fact that economic uncertainty should continue to keep the stock market in “choppy waters,” Keith Lerner of Truist Advisory believes that the selling has become excessive.
According to Matt Maley of Miller Tabak + Co., any stock gains at this time should be viewed as a relief rally. According to him, traders should utilize these rebounds as an opportunity to become more defensive.
In the next months, “buying on weakness” could present an exceptional opportunity, he continued. We simply do not believe that June was an exceptional opportunity.
In the meantime, one of Wall Street’s most prominent bears is becoming even more negative over the future of earnings.
Mike Wilson of Morgan Stanley lowered his earnings-per-share growth forecast, stating that a slowing economy is now likely to be a greater risk for stocks. Even if there is no recession in 2023, he predicts profits to decline by 3%.
Investors are reducing their equities holdings as if a severe economic downturn is already upon us. According to strategists at Deutsche Bank AG, a historically significant correlation between the stock exposure of discretionary investors and the ISM manufacturing index is weakening.
After a dramatic decline last week, their current stock exposure now ranks in the bottom 10 percent of all historical observations. Historically, this corresponds to an ISM reading of 47, which is below the recessionary threshold of 50.
According to EPFR Global data quoted by Bank of America Corp., global equity funds experienced redemptions of $9.4 billion in the week ending August 31. This represents the fourth-largest redemptions this year. US equities experienced the largest outflow in ten weeks, while global bond funds lost $4,2 billion.