A trader works on the floor at the New York Stock Exchange (NYSE) in New York City, U.S., October 27, 2023. Portal/Brendan McDermid ACQUIRES LICENSE RIGHTS
NEW YORK, Oct 27 (Portal) – Financial markets are bracing for a potentially momentous week, with a Federal Reserve meeting, U.S. jobs data and earnings from technology heavyweight Apple Inc (AAPL.O) potentially driving the price of stocks and bonds pretend The rest of the year.
October lived up to its reputation for volatility as a rise in Treasury yields and geopolitical uncertainty pressured stocks. The S&P 500 index (.SPX) is down 3.5% this month, adding to losses that have left it over 10% below its late July peak.
Whether the situation remains difficult for the rest of 2023 may depend largely on the bond market. The Fed’s “longer-term higher” interest rate policy and increasing fiscal worries in the U.S. sent the benchmark 10-year Treasury yield – which moves inversely to prices – to 5% earlier this month, its highest level since 2007. Higher Treasury yields apply as a headwind for stocks, in part because they compete with stocks for buyers.
Investors fear yields could rise further if the Fed reiterates its hawkish message at the central bank’s Nov. 1 policy meeting. Strong U.S. jobs data next Friday could also be a catalyst for rising yields if it bolsters the case for keeping interest rates elevated to cool the economy and prevent a rise in inflation.
“Stocks will rally when the market believes bond yields have peaked,” said Sam Stovall, chief investment strategist at CFRA Research.
Overall, futures markets are pricing in a near certainty that the Fed won’t raise rates in November and a nearly 80 percent chance that the central bank will keep rates steady in December, according to CME’s FedWatch tool. Still, policymakers have forecast they will keep interest rates at current levels through most of 2024, longer than markets had previously expected.
Investors are playing “a waiting game about how much each economic data point has to rise to bring another rate hike back on the table,” said Alex McGrath, chief investment officer of NorthEnd Private Wealth.
With U.S. gross domestic product growing a whopping 4.9% in the third quarter, signs that the labor market remains too hot or that the Fed sees the need for further tightening to control inflation could further fuel volatility.
“It feels like we are at a crossroads as to whether or not the strong growth we saw in the summer months will continue in the fourth quarter,” and worries about inflation and tight monetary policy continue to simmer, Charlie said Ripley, senior investment strategist for Allianz Investment Management.
Adding to bond market woes, the Treasury Department is expected to announce upcoming auction sizes later this week. Concerns about a growing federal deficit and increased supply have helped push yields higher.
Investors are also awaiting Apple’s results on Thursday, as an earnings season comes with disappointments at some growth and technology giants, including Tesla and Google. The tech-heavy Nasdaq 100 index is down 11% from its peak, although it is still up nearly 30% year-over-year.
Some investors believe the worst of the selloff may be over.
A stock market recovery would follow seasonal trends, said CFRA Research’s Stovall. Since 1945, the S&P 500 has risen an average of 1.5% in November, making it the third-best month of the year, he said.
In general, some believe that the stock market’s trading patterns this year point to a recovery in the fourth quarter.
According to Ned Davis Research, in the 14 cases where the S&P 500 rose at least 10% through July and then fell in August, like this year, the index rose each time in the last four months of the year. The average profit in these cases was 10%.
According to technical indicators, stocks appear to be “oversold” and could rise if economic data arrives as expected, said Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research.
“The stock market is poised for a rally toward the end of the fourth quarter.”
Reporting by David Randall; Edited by Ira Iosebashvili and Richard Chang
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