How to Play the Bear Market
Good morning, this is Jason Ma in Los Angeles where gas prices are falling – but still above $6 a gallon in most places. Fuel costs will be a key component of September’s consumer price data out Thursday from the Labor Department and could signal where the Federal Reserve and the stock market are headed.
Analysts expect the headline CPI to cool further, this time to 8.1% annual growth from 8.3% in August, 8.5% in July and 9.1% in June. Investors should brace for a 5% drop in the stock market if the reading is above 8.3%, JPMorgan’s trading desk said in a note this week.
Even a reading of 8.1% to 8.3% would also be negative for stocks, with the note estimating that the S&P 500 would fall about 2% in that scenario.
But a CPI push below 7.9% would likely trigger a 2% to 3% rally, “although if we see the CPI gap go down more than 60 basis points, the move could be larger,” added JPMorgan added.
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The stock market could fall further amid rising inflation and a recession.
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1. Investors should wait to get bullish on the falling stock market as concerns about inflation and rate hikes continue to confound valuation norms of the past two decades, according to Bank of America.
The bank said it’s waiting for three key factors that suggest it’s safe to buy shares, and so far none of them have materialized.
The three missing pieces that are “going bullish” in the stock market include corporate earnings falling at least 9% from current levels, falling consumer savings as the unemployment rate rises, and outflows from stock ETFs, the bank said in a note on Wednesday.
Based on those metrics, there’s still a long way to go. For example, there were $531 billion in inflows into stock ETFs year-to-date, which is the second-best year on record, according to BofA.
A prominent ETF is still seeing robust investor inflows despite a massive sell-off. Cathie Wood’s flagship ARKK ETF has attracted $1.3 billion in inflows year-to-date, according to data from VettaFi.
That’s despite the fact that it’s down 77% from its peak, surpassing the decline of the dot-com bubble burst. And the sell-off could get worse because the ETF differs in two ways from tech stocks 20 years ago, DataTrek Research said in a note Wednesday. First, unlike during the dot-com bust, interest rates are rising, not falling. And second, ARK Invest is an actively managed ETF, while the Nasdaq is passive and much more diversified.
Stocks as a whole have seen some upside lately, suggesting investors believe a bottom may be near. BofA clients invested $6.1 billion in US stocks last week, marking the third-largest inflow since the bank began collecting data in 2008 and the fifth straight week of inflows.
What do you think? Has the stock market bottomed yet? E-mail [email protected].
In other news:
Ray Dalio speaking at the MarketWatch Best New Ideas in Money Festival on September 21, 2022.
Kevin Sikorski for the MarketWatch Best New Ideas in Money Festival.
2. US stock futures rise early Thursday, ahead of the much-anticipated US inflation data due later in the morning. Meanwhile, cryptocurrencies have been bearish, with Bitcoin trading around the $19,000 mark. Here are the latest market moves.
3. Earnings on deck: Delta Air Lines, BlackRock, Walgreens Boots Alliance and more report.
4. According to Morgan Stanley, many companies solve their problems in the supply chain. But they’re also building up inventories as consumers cut back on fears about the economy. That could be a devastating combination, though the bank named nine companies that could dodge it.
5. The US faces a “perfect storm” of debt, political strife and war overseassaid billionaire Ray Dalio. The Bridgewater Associates founder warned the Fed must hurt markets and the economy to overcome stubborn inflation. He also offered portfolio advice.
6. Russian fuel supplies to troops fighting in the Ukraine War reached their highest level since the beginning of the invasion. According to a Bloomberg report, fuel shipments to military units in and around Ukraine totaled nearly 220,000 tons in September. The surge comes as Moscow mobilizes more troops after a series of stunning defeats.
7. China’s oil demand plummets as OPEC forecasts a 60,000 bpd drop this year, after forecasting a 120,000 increase just a month ago. The cartel led the extension of zero-COVID policies in some areas of China, which is the world’s largest oil importer. OPEC has also revised down its forecasts for global demand growth in 2022 and 2023.
8. A stock trader that’s up 42% so far this year explained how it navigated the rough market. Matthew Caruso is a position trader, meaning he holds his stocks for weeks or even months. He shared five key adjustments he made to his trading strategy that have helped him beat the market and stay profitable.
9. Grammy-nominated DJ Steve Aoki has made more money from NFTs than royalties. The 44-year-old celebrity producer told Insider how he dove “headfirst” into Web3. Here’s how he says he made $10 million — and how Web3 can disrupt the multi-billion dollar music industry.
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10. Twitter stock remains below Elon Musk’s offer price of $54.20 per share, suggesting the market has doubts that either side can reach an agreement on these terms. But the stocks are outperforming the broader market and even the Nasdaq so far this year. Billionaire investor David Einhorn revealed that Twitter is his biggest long bet of 2022.
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Curated by Jason Ma in Los Angeles. Feedback or tips? Email [email protected].
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.