Yahoo Finance The Fed-induced sell-off may not be over: What to know this week
The S&P 500 could retest its June low in the week ahead as equity markets endure a brutal bout of selling spurred by fears the Federal Reserve’s inflation fight may cause a recession.
A move by the U.S. central bank to lift interest rates by 75 basis points for the third straight time on Wednesday while signaling more sizable hikes were likely renewed worries among investors that a hard landing is imminent – particularly as monetary policymakers around the globe followed suit in recent days.
“The chances of a soft landing are likely to diminish," Fed Chair Jerome Powell said in a speech following the policy announcement. “No one knows whether this process will lead to a recession or, if so, how significant that recession would be.”
U.S. stocks plunged Friday, with the major averages logging losses in five of the six last weeks. The Dow Jones Industrial Average was down roughly 4% for the week, hitting a 2022 low after dipping into bear market territory during the session. The benchmark S&P 500 shed 4.6% over the same period, teetering near its June 16 low of 3,666.77. The major average closed at 3,693.23 on Friday. And the technology-heavy Nasdaq Composite posted a weekly loss of roughly 5.1%.
Recessionary worries also extended beyond equities. The rate-sensitive 2-year Treasury note spiked above a fresh 15-year high of 4.2% on Friday, soon after the 10-year Treasury yield topped 3.7%, the highest since 2011. In currency markets, the U.S. dollar index surged to the highest since May 2002 and in commodities, oil prices plunged below $80 to an eight-month low.
Bank of America’s Mark Cabana likened current market conditions to those of March 2020, when the COVID-19 pandemic upended the global economy – but without a policy backstop.
“Central banks are not helping,” he said in a Friday note. “The market knows central banks will hike until something breaks.”
“The Fed is hiking at the fastest pace in recent memory with maximum uncertainty on the macro outlook,” Cabana added. “To us, this seems like driving at 75 mph but not knowing which way the road will turn – an accident seems inevitable.”
Investors will have a hefty docket of economic releases to mull in the coming week, including the latest gauges on PCE inflation – the Federal Reserve’s preferred inflation measure – durable goods orders, new home sales, and consumer confidence. The third estimate of gross domestic product (GDP), the broadest measure of economic activity, is also due out.
Meanwhile, Wall Street is also buckling up for what is expected to be a challenging earnings season filled with economic warnings and downward guidance revisions from companies.
“We’re of the view that 2023 earnings estimates have to continue to decline,” a note outlining a discussion between Baird’s Ross Mayfield and Ryan Grabinski said. “We have our 2023 recession odds at about 50% right now, and in a recession, earnings decline by an average of about 30%.”
“The consensus 2023 earnings estimate has only come down 3.3% from its June highs, and we think those estimates will be revised lower, especially if the odds of a 2023 recession increase from here.”
Of S&P 500 companies that held earnings calls from June 15 through Sept. 8, 240 cited the term “recession” – the highest number citing the term since at least 2010, and well above the five-year average of 52, according to data from FactSet research.
Several key earnings announcements are on top in the coming week, with headliners like Bed Bath & Beyond (BBBY), Nike (NKE), Micron Technology (MU), and Rite Aid (RAD) set to report.
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Economic Calendar
Monday: Chicago Fed National Activity Index, August (0.27 during prior month), Dallas Fed Manufacturing Activity Index, September (-12.0 expected, -12.9 during prior month)
Tuesday: Durable goods orders, August preliminary (-0.1% expected, -0.1% during prior month), Durables excluding transportation, August preliminary (0.3% expected, 0.2% during prior month), Non-defense capital goods orders excluding aircraft, August preliminary (0.2% expected, 0.3% during prior month) Non-defense capital goods shipments excluding aircraft, August preliminary (0.5% during prior month), FHFA Housing Pricing Index, July (0.1% expected, 0.1% during prior month), S&P CoreLogic Case-Shiller 20-City Composite, month-over-month, July (0.20% expected, 0.44% during prior month), S&P CoreLogic Case-Shiller 20-City Composite, year-over-year, July (16.90% expected, 18.65% during prior month), S&P CoreLogic Case-Shiller U.S. National Home Price Index (17.96 during prior month), Conference Board Consumer Confidence, September (104.3 expected, 103.2 during prior month), Conference Board Present Situation, September (145.4 during prior month), Conference Board Expectations, September (75.1 during prior month), Richmond Fed Manufacturing Index, September (-11 expected, -8 during prior month), New Home Sales, August (500,000 expected, 511,000 during prior month), New Home Sales, month-over-month, August (-2.2% expected, -12.6% during prior month)
Wednesday: MBA Mortgage Applications, week ended Sept. 23 (3.8% during prior week), Advance Goods Trade Balance, August (-$88.5 billion expected, -$89.1 billion during prior month, revised to -$90.2 billion), Wholesale Inventories, month-over-month, August preliminary (0.5% expected, 0.6% during previous month), Retail Inventories, month-over-month, August (1.1% during prior month), Pending Home Sales, month-over-month, August (-0.8% expected, -1.0% during prior month), Pending Home Sales NSA, year-over-year, August (-22.5% during prior month)
Thursday: Initial Jobless Claims, week ended Sept. 24 (220,000 expected, 213,000 during prior week), Continuing Claims, week ended Sept. 17 (1.379 million during prior week), GDP Annualized, quarter-over-quarter, 2Q third (-0.6% expected, -0.6% prior), Personal Consumption, quarter-over-quarter, 2Q third (1.5% expected, 1.5% prior), GDP Price Index, quarter-over-quarter, 2Q third (8.9% expected, 8.9% prior), Core PCE, quarter-over-quarter, 2Q third (4.4% expected, 4.4% prior)
Friday: Personal Income, month-over-month, August (0.3% expected, 0.2% during prior month), Personal Spending, month-over-month, August (0.2% expected, 0.1% during prior month), Real Personal Spending, month-over-month, August (0.2% expected, 0.2% during prior month), PCE Deflator, month-over-month, August (0.1% expected, -0.1% during prior month), PCE Deflator, year-over-year, August (6.0% expected, 6.3% during prior month), PCE Core Deflator, month-over-month, August (0.5% expected, 0.1% during prior month), PCE Core Deflator, year-over-year, August (4.7% expected, 4.6% during prior month), MNI Chicago PMI, September (51.8 expected, 52.2 during prior month), University of Michigan Consumer Sentiment, September final (59.5 expected, 59.5 prior)
PCE Deflator, month-over-month, May (0.7% expected, 0.2% during prior month), PCE Deflator, year-over-year, May (6.4% expected, 6.3% during prior month), PCE Core Deflator, month-over-month, May (0.4% expected, 0.3% during prior month), PCE Core Deflator, year-over-year, May (4.8% expected, 4.9% during prior month), MNI Chicago PMI, June (58 expected, 60.3 during prior month)
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Earnings Calendar
Monday: No notable reports scheduled for release.
Tuesday: Blackberry (BB), Cal-Maine Foods (CALM), Cracker Barrel (CBRL), Jabil (JBL)
Wednesday: Cintas (CTAS), Jefferies (JEF), MillerKnoll (MLKN), Paychex (PAYX)
Thursday: Bed Bath & Beyond (BBBY), Micron Technology (MU), Nike (NKE), Carmax (KMX), Rite Aid (RAD)
Friday: Carnival (CL)
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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