Premarket trading: Wall Street dodged a rail strike crisis, but there’s trouble ahead

But it is not the only potential catalyst for another market sell-off, as uncertainty continues to dominate.

What’s going on: Active investors have had a rough year: More than half of U.S. large-cap stock fund managers underperformed the S&P 500 in the first half of 2022, according to S&P Dow Jones Indices. Unfortunately, there are many more bumps in the road for investors in the coming weeks.

Look here: Shares of FedEx were down nearly 20% in premarket trading on Friday after the company withdrew financial guidance it issued just a few months ago and said it would cut costs as demand for packages fell across the world. world. The company is seen as a benchmark in the economy, as it has knowledge of shipping in a wide range of industries.

1. The United States Federal Reserve meets next week. Persistent inflation, recession fears and slowing economic growth have rattled markets around the world. As major central banks institute aggressive rounds of monetary policy tightening to combat inflation, investors fear they may go too far.

On Wednesday, the US Federal Reserve will announce its decision on its next round of rate hikes. Fed Chairman Jerome Powell, faced with a tight labor market and high inflation, sent an aggressive message to investors, indicating that the central bank is likely to raise interest rates by another 75 basis points for the third time in a row.

If the Fed remains aggressive at the expense of economic growth, we can expect months of cooling jobs numbers, especially wage data, and widening credit spreads that make it more expensive for businesses to borrow.

That means higher bond yields, lower stock prices and less chance of a soft landing.

2. Earnings season is coming up. Another risk for Wall Street is weaker corporate earnings in October.

About half of all S&P 500 (INX)companies mentioned “recession” during second-quarter earnings calls, the highest number since 2010. Wall Street’s estimates for the coming quarter reflect that pessimism.
Third-quarter earnings-per-share estimates have fallen more than 5.5% since the end of June, according to FactSet data. That is the biggest drop in a quarter since the second quarter of 2020 (when covid-19 sent the United States into recession).

Analysts at Charles Schwab forecast weaker earnings growth through 2022 compared to last year.

3. War in Ukraine. Markets have been buoyed by Ukraine’s advances, but the outcome of the war is far from certain. That should have investors on their guard. Even if the conflict continues in Ukraine’s favour, Europe is unlikely to dodge an energy-crisis-induced recession this winter triggered by the invasion.

Global commodity flows, including critical supplies of fossil fuels, food, and fertilizer, continue to be hampered, regardless of which side is winning the battle. A new report from S&P Global Ratings estimates that war-related global food and energy crises will last until at least 2024. Those crises will continue to weigh on GDP and fiscal performance.

US mortgage rates jump to highest level in 14 years

Mortgage rates in the US topped 6% this week, reaching their highest level since the fall of 2008.

High borrowing costs and low inventory levels continue to plague Americans looking for affordable housing, reports my colleague Anna Bahney.

Stubbornly high inflation is responsible for driving up rates, said Sam Khater, chief economist at Freddie Mac.

Rates had fallen in July and early August as recession fears took hold. But comments from Federal Reserve Chairman Jerome Powell and recent economic data have drawn investors’ attention back to the central bank’s fight against inflation, driving rates higher.

There is a silver lining for those looking to buy. As mortgage rates rise and home prices remain high, home sales are slowing. Prices could also fall soon.

With borrowing costs expected to continue rising in the coming months, it is becoming increasingly clear that home prices must decline to restore balance to housing markets.

“Many sellers are recognizing the change in market conditions and are responding by cutting their sales prices,” said Joel Kan, associate vice president of the Mortgage Bankers Association. “These changes coincide with the time of year when buyers have historically found the best market conditions to find a bargain.”

The growing economic ties between China and Russia

Chinese leader Xi Jinping and his Russian counterpart Vladimir Putin met face-to-face on Thursday for the first time since Moscow sent troops to Ukraine earlier this year. Investors closely watched the meeting for clues about the state of their economic relationship.

At the start of the meeting, Putin acknowledged that Xi had “questions and concerns” about the invasion. However, his financial partnership did not appear to be at risk, reports my CNN colleague Nectar Gan.
Beijing has boosted bilateral trade to record levels in a boon for Russian businesses amid Western sanctions. China’s spending on Russian goods soared 60% in August from a year earlier. Its shipments to Russia rose 26% to $8 billion in August, reports my colleague Laura He.

Putin emphasized the deepening of the two nations’ economic ties at their meeting, noting that bilateral trade exceeded 140 billion US dollars last year. “I am convinced that by the end of the year we will reach new record levels, and in the near future,” he said.

Beijing has carefully avoided violating Western sanctions or providing direct military support to Moscow, but Chinese companies are taking advantage of the exodus of Western brands from Russia.

Chinese smartphones accounted for two-thirds of all new sales in Russia between April and June. Reuters reported. Passenger cars from Chinese manufacturers accounted for nearly 26% of Russia’s market in August, the highest on record, according to Russian Analytics. Autostat Agency.

Until next time

A first look at the University of Michigan consumer confidence survey for September is released at 10 am ET.

Next week: It’s a blockbuster week for central banks with the Federal Reserve and Bank of England revealing their latest policy decisions.

Leave a Comment