Home Correction trading Pre-market trading: Wall Street dodged a crisis of rail strikes, but there are problems ahead

Pre-market trading: Wall Street dodged a crisis of rail strikes, but there are problems ahead

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But that’s 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 equity fund managers underperformed the S&P 500 in the first half of 2022, according to the S&P Dow Jones Indices. Unfortunately, there are many more bumps in the road for investors in the coming weeks.

See here: FedEx shares were down nearly 20% in premarket trading on Friday after the company withdrew financial guidelines it issued just months ago and said it would cut costs as demand for parcels was declining across the globe. The company is considered a gauge of the economy as it has insight into shipments across a wide range of industries.

1. The US Federal Reserve meets next week. Persistent inflation, recession fears and slowing economic growth rattled markets around the world. Today, as major central banks institute aggressive cycles of monetary policy tightening to fight inflation, investors fear they are going too far.

On Wednesday, the US Federal Reserve will announce its decision on its next round of rate hikes. Fed Chairman Jerome Powell, in the face of a very tight labor market and high inflation, sent a hawkish message to investors – indicating that the central bank will probably raise interest rates by another 75 basis points for the third consecutive time.

If the Fed remains aggressive at the expense of economic growth, we can expect months of falling jobs numbers, especially wage data, and widening credit spreads that make borrowing more costly for businesses.

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

2. Earnings season is approaching. Another risk for Wall Street is the decline in corporate earnings in October.

About half of all S&P500 (INX)companies mentioned “recession” during second-quarter earnings calls, the highest number since 2010. Wall Street estimates for the next quarter reflect that gloom.
Estimates for third-quarter earnings per share have fallen more than 5.5% since late June, according to FactSet data. It’s the biggest one-quarter drop since the second quarter of 2020 (when Covid-19 sent the US into recession).

Charles Schwab analysts predict weaker earnings growth through 2022 compared to last year.

3. War in Ukraine. Markets were buoyed by Ukraine’s advances, but the outcome of the war is far from certain. This should put investors on their toes. Even if the conflict continues to turn in favor of Ukraine, Europe is unlikely to avoid a recession induced by the energy crisis this winter caused by the invasion.

Global flows of basic commodities, including essential supplies of fossil fuels, food and fertilizers, continue to be hampered no matter which side wins the fight. A new report from S&P Global Ratings estimates that war-related global energy and food shocks will last at least until 2024. These shocks will continue to weigh on GDP and fiscal performance.

US mortgage rates hit 14-year high

U.S. mortgage rates topped 6% this week, hitting their highest level since the fall of 2008.

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

Stubbornly high inflation is responsible for the rate hike, noted 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 brought investors’ attention back to the central bank’s fight against inflation, pushing rates higher.

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

As borrowing costs are expected to continue to rise over the next few months, it is becoming increasingly clear that house prices must fall to restore balance to housing markets.

“Many sellers recognize changing market conditions and respond by reducing their asking prices,” said George Ratiu, head of economic research at Realtor.com. “These changes coincide with the time of year when buyers have historically found the best market conditions to land a bargain.”

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 followed the meeting closely 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. Their economic partnership did not seem threatened, however, reports my CNN colleague Nectar Gan.
Beijing has boosted bilateral trade to record levels, a boon for Russian businesses amid Western sanctions. China’s spending on Russian goods soared 60% in August from a year ago. Its shipments to Russia jumped 26% to $8 billion in August, reports my colleague Laura He.

Putin highlighted the two nations’ deepening economic ties during their meeting, noting that bilateral trade topped $140 billion last year. “I am convinced that by the end of the year we will reach new records, 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 profiting from 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 the Russian market in August, the highest on record, according to Russian analysis agency Autostat.

Next

A first look at the University of Michigan consumer sentiment survey for September is released at 10 a.m. ET.

Coming next week: It’s a blockbuster week for central banks with the Federal Reserve and Bank of England due to reveal their latest policy decisions.

Correction: An earlier version of this story incorrectly assigned a quote to sellers recognizing the change in market conditions. It should have been attributed to George Ratiu, head of economic research at Realtor.com.