Markets are starting to act super strange
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Investors are tightening their neck braces as US stocks soar upwards, plummet back down and then do it all over. Stock market volatility is at its bumpiest level since July.
The whiplash-inducing ride comes as conflicting data paints a cloudy picture about the state of the US economy. Investors have been reading economic reports as tea leaves, searching for signs that the Federal Reserve could soon pivot to a slower pace of rate hikes to fight inflation, and reacting accordingly.
What’s happening: The S&P 500 just printed its worst performance through the first nine months of any year since 2002. September was particularly rough – with all three major US indexes falling into a bear market.
October brought more vertigo as stocks quickly recovered. The S&P 500 gained 5.7% on Monday and Tuesday, its biggest two-day increase since April 2020. On Wednesday, stocks plunged once more before quickly bouncing back slightly. They ended the day slightly lower.
This week’s strange swings correspond with two new data points that buoyed the possibility of a Fed pivot.
Markets surged on the news that the Reserve Bank of Australia raised interest rates by just a quarter of a percentage point on Tuesday. That’s half the amount analysts had expected.
The move led to speculation that the Fed could jump on the bandwagon and dial back its own rates.
That seems unlikely. “We’re starting to see some things the doves can hang their hat on, but I don’t think it will be enough to stop another 75 basis-point move in November,” wrote Neil Dutta at Renaissance Macro Research in a note Tuesday.
Then, September job vacancy numbers dropped sharply, falling below analyst expectations, according to Refinitiv data.
A weakening labor market puts downward pressure on wages and inflation. So while fewer job openings appear bad at face value, they indicate that the Fed’s tightening regimen is working.
The Fed will see this as “an encouraging development,” wrote analysts at Barclays, but they cautioned that it’s just one piece of data among many. The labor market is still tight with about 1.7 job openings for every unemployed worker in the US.
The hope appeared to be fleeting, anyway. New private employment data on Wednesday by payroll services firm ADP suggested that the labor market isn’t losing any steam. Businesses beat estimates with 208,000 jobs added in September. They added 185,000 jobs in August.
The disconnect: If it feels like we’ve been here before, it’s because we have.
Pivot-friendly thinking helped fuel the bear market rally we saw in July and August. That didn’t last, and markets crashed to hit new lows by early fall.
Fed officials have repeatedly said they plan to continue with their policy of elevated rate hikes and have publicly worried that markets refuse to listen to their messaging.
Panic and ecstasy are not investing strategies, and a blink is not a pivot.
What’s next: Expect more volatility as investors digest the Bureau of Labor Statistics’ latest unemployment data on Friday morning. The data measures the change in the number of people employed in September and is closely watched by the Fed. In this “good-means-bad” Fed world, an increase in unemployment will likely send stocks up.
OPEC+ said Wednesday that it will slash oil production by 2 million barrels per day, the biggest cut since the start of the pandemic. It’s a move that threatens to push gasoline prices higher as Europe faces a heating crisis this winter and just weeks before US midterm elections.
The reduction is equivalent to about 2% of global oil demand, reports my colleague Hanna Ziady. The group of major oil producers, which includes Saudi Arabia and Russia, together controls more than 40% of global oil production.
The price of Brent crude oil rose 1.5% to more than $93 a barrel on the news, adding to gains this week ahead of the gathering of oil ministers. Oil prices were little changed early Thursday.
The rise in oil gave a lift to energy stocks, helping to boost the overall market, reports Paul R. La Monica.
(CVX) was one of the top Dow stocks, rising nearly 1%. Exxon Mobil
(XOM) and oil service giants Schlumberger
(SLB) and Halliburton
(HAL) were among the leaders in the S&P 500, with each stock gaining between 4% and 6%.
Elon Musk’s decision this week to once again move forward with his deal to acquire Twitter could signal the return of former President Donald Trump to the platform, reports my colleague Donie O’Sullivan.
That presents a double-edged sword for Trump.
The former president could regain access to the nearly 90 million Twitter followers he had before he was banned permanently by the platform two days after the January 6 attack on the Capitol. But it could make Truth Social, the social media business created by Trump after his Twitter ban, unnecessary.
Trump Media and Technology Group, which owns Truth Social, is in the middle of a contentious bid to go public through a merger with blank-check company Digital World Acquisition Corp. This news further complicates the merger.
Shares of DWAC fell more than 5% Tuesday to $17.10, and remained near that level on Wednesday. The stock’s 2022 peak was about $97 in March. Twitter
(TWTR) stock is up nearly 20% this week.
“I do think it was not correct to ban Donald Trump; I think that was a mistake,” Musk said at a conference in May, pledging to reverse the ban were he to become the company’s owner.
Jack Dorsey, who was the CEO of Twitter when the company banned Trump but has since left the company, responded to Musk’s comments saying he agreed that there should not be permanent bans. He said Trump’s ban was a “business decision” and it “shouldn’t have been.”
ConAgra, Constellation Brands, McCormick and Levi Strauss report earnings.
Plus: US Department of Labor reports weekly jobless claims at 8:30 a.m. ET.