Oil Steadies as Looming Interest-Rate Hikes Spur Demand Concern

(Bloomberg) -- Oil was steady near $86 a barrel ahead of a Federal Reserve decision on Wednesday that’s expected to see further monetary tightening.

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The Fed and other central banks from Europe to Asia are expected to deliver interest-rate hikes this week as they seek to tame rampant inflation that’s taken a toll on demand. West Texas Intermediate futures closed 0.7% higher on Monday following a choppy session.

Crude has lost about a third of its value since early June, erasing all the gains made in the wake of Russia’s invasion of Ukraine, as concerns about a global slowdown weighed on demand. Liquidity has also thinned, leading to volatile price swings, while a stronger dollar has added to headwinds.

A raft of US companies warned about the macro challenges rippling through the global economy. Automaker Ford Motor Co. said inflation was pushing costs $1 billion higher than expected in the current quarter, while package-delivery giant FedEx Corp. flagged weakness in Asia and Europe.

“While recessionary worries continue to weigh on market sentiment, global oil demand concerns will likely continue to be baked in very gradually,” said Vandana Hari, founder of Vanda Insights in Singapore. “There is not much to push crude out of its recent range.”

The potential for increased supply has weighed on the outlook. The US said it would offer an additional 10 million barrels of oil in November from its strategic reserves, ahead of plans by the European Union to ban Russian crude in December. Bids for the crude will be awarded no later than Oct. 7.

Investors are also weighing the prospect of higher Iranian crude flows should protracted talks on reviving a nuclear deal reach a conclusion. Discussions on efforts to resurrect an accord on the sidelines of the United Nations General Assembly in New York are “a possibility,” Foreign Ministry Spokesman Nasser Kanaani said at a press conference.

The United Arab Emirates has flagged an acceleration of plans to raise its oil production capacity, according to people familiar with the matter. Abu Dhabi National Oil Co., which pumps almost all the UAE’s oil, wants to be able to produce 5 million barrels a day by 2025.

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Peloton to Sell Gear, Apparel Via Amazon as CEO Retools Strategy $PTON

 

(Bloomberg) -- Peloton Interactive Inc. said it will sell bikes and certain accessories on Amazon.com Inc. in the US, breaking with a longtime practice of exclusively selling products via its own website and retail stores.

The move to open a storefront on Amazon’s sprawling online marketplace will help Peloton expand its distribution and make products more readily available, the New York-based company said in a statement Wednesday. Peloton shares rose 12.4% in New York.

Chief Executive Officer Barry McCarthy, a tech veteran who took the helm in February, is trying to turn around a business that thrived during the early days of the pandemic but slowed drastically in the past year. He’s looking to reinvigorate sales, boost efficiency and restore some of Peloton’s former cachet.

“Peloton’s retail partnership with Amazon.com in the US broadens its reach, though we don’t think of this as a precursor to M&A,” said Geetha Ranganathan, a Bloomberg Intelligence senior media analyst. “The pact should help boost Peloton’s top line but, more importantly, trim distribution costs and help it turn free cash flow positive in fiscal 2023.”

In another effort to goose sales, Peloton is redesigning its bikes so customers can assemble them at home and will explore letting users beam its content to rival workout machines.

The fitness company earlier this month announced plans to lay off about 800 workers, raise the prices of its equipment and outsource deliveries and some customer service functions. It’s also looking to wind down much of its retail footprint in North America starting next year.

It’s not hard to see why Peloton chose to sell its wares on Amazon. The Seattle-based company has a commanding position in online retail in the US. Insider Intelligence estimates Amazon will account for 38% of US retail e-commerce sales this year, with Walmart a distant second at about 6%.

“Expanding our distribution channels through Amazon is a natural extension of our business and an organic way to increase access to our brand,” Kevin Cornils, Peloton chief commercial officer, said in the statement.

(Updated with shares, analyst’s quote in fourth paragraph.)

More stories like this are available on bloomberg.com

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Alibaba, Boeing, NIO and More Stock Market Movers Monday

 

Stock futures were trading lower Monday as recession fears remained at the forefront of investors’ minds as a new trading month begins. Alibaba (ticker: BABA) gained 1.7% as investor sentiment improved after the Chinese tech giant released a statement in response to the possibility of being delisted by the Securities and Exchange Commission. The company said that it will “strive to maintain its listing status on both the NYSE and the Hong Kong Stock Exchange.”

Alibaba, Boeing, NIO and More Stock Market Movers Monday (yahoo.com)

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Stock market upside is 'very much capped' as the Federal Reserve looks to raise rates more than expected, says former New York Fed president

 

• Wall Street is underestimating further Federal Reserve rate hikes, according to Bill Dudley.

• The former New York Fed chief told Bloomberg TV that he thinks the terminal rate is about 4%.

• If stocks rally another 5% to 10%, "I would view that as sort of undermining what the Federal Reserve is trying to accomplish," he said.

Financial markets are underestimating the Federal Reserve's hawkishness, which could limit the upside for investors, said former New York Fed President Bill Dudley.

Stocks jumped after Fed Chairman Jerome Powell said Wednesday that a future slowdown in rate hikes is likely as policy gets more restrictive, with markets anticipating a dovish pivot will follow an aggressive cycle of increases.

But Dudley told Bloomberg TV that he didn't interpret Powell's comments as dovish. Instead, he pointed to Powell's other comments, in particular that rates need to go past a neutral level to be moderately restrictive and that the risk of doing too little to fight inflation is greater than risk of doing too much.

"I think the upside for the markets are very much capped by the fact that the Federal Reserve needs tighter financial conditions to generate the slack in the labor market that we don't have today," Dudley said.

In fact, he sees a long runway for the Fed's tightening and predicted rates will eventually climb to a terminal level of about 4%, up from 2.25%-2.50% now.

He also highlighted that Powell pointed to the Fed's Summary of Economic Projections — aka the "dot plot" — as a guide on rates. The projections indicate that policymakers expect the federal funds rate will reach 3.25%-3.5% by the end of this year, then climb another 50 basis points next year.

But others on Wall Street are hopeful that the Fed will reverse its tightening, perhaps even as soon as later this year.

Pantheon Macroeconomics chief economist Ian Sheperdson wrote in a note following Powell's comments that the Fed could eye a rate cut in September, because "all measures of supply chain pressures and costs have eased markedly in recent months."

Meanwhile, the costs of key commodities like gasoline have also come well off highs, raising hopes inflation will ease soon and take some pressure off the Fed.

But Dudley said markets are wrong to think the Fed will reverse course and warned against more stock bullishness.

"Say the equity market were to rally another 5 to 10% from here, I would view that as sort of undermining what the Federal Reserve is trying to accomplish," he said.

Read the original article on Business Insider

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How Does the Stock Market Perform During a Recession? Here's What History Shows

 

There's bad news -- but some good news, too.

We're probably already in a recession. The U.S. economy contracted for the second consecutive quarter, with the gross domestic product (GDP) falling 0.9% in Q2 after a 1.6% decline in Q1. Having two quarters in a row of GDP declines is widely viewed as the beginning of a recession.

Officially, though, the U.S. won't be in a recession until eight economists say so. These economists serve on the National Bureau of Economic Research's Business Cycle Dating Committee.

Investors won't wait until the official declaration of a recession to worry about the stock market. But how does the market perform during a recession? Here's what history shows.

An ugly chart

The S&P 500 doesn't fully represent the entire stock market. It only includes 500 of the biggest publicly traded companies listed on U.S. stock exchanges. However, the S&P 500 has long been viewed as a good proxy for the overall market. And since the index has been around for 65 years, it gives us a way to look at how the stock market has performed in most post-World War II recessions.

There have been 10 official U.S. recessions since the S&P 500 was established in 1957. The following chart shows how the index fared during those periods.

The worst S&P 500 decline occurred during the Great Recession, which began in December 2007 and went through June 2009. The index plunged as much as 55% below its previous peak in March 2009.

However, that was a much more severe recession than normal. The average S&P 500 decline during post-World War II recessions is around 29%. This average is skewed, though, in part due to the especially steep sell-off during the Great Recession. The median decline is around 24%.

Unsurprisingly, the S&P 500 has always dropped during a recession. Many companies report lower earnings as consumers tighten their purse strings. Investors often react negatively to any bad news.

The best performance for the S&P 500 during a recession was a 20% decline in 1990. That recession was a short one, lasting only eight months.

IMAGE SOURCE: GETTY IMAGES.

Two important details

There are two important details related to how the S&P 500 has performed during recessions. First, in many cases, the index declined significantly well before the official start of the recession. Second, the S&P 500 frequently began to rebound well before the end of the recession.

The S&P 500's decline before the start of a recession makes sense. Investors tend to be forward-looking. Most recessions don't come out of the blue, although the COVID-19 recession of 2020 was an outlier.

Investors usually see the signs of a potential recession well before one is officially declared and often become more cautious in advance. This risk-averse psychology can impact stocks before a recession hits.

But this same forward-looking mentality also helps stocks to begin recovering before recessions officially end. Again, the economic improvement that leads to the ending of a recession doesn't usually happen overnight.

Investors watch for hints that a turnaround could be on the way. When they see positive indicators, they begin buying stocks more aggressively. This often causes a bandwagon effect, with even more investors jumping into the stock market.

Reasons for optimism

Looking at the past performance of the S&P 500 should give investors reasons to be cautiously optimistic right now. The index is currently down around 18% and was more than 20% below its previous peak just a few weeks ago. There's not much more room to fall for the S&P 500 to reach the median level of decline during a recession.

More importantly, the S&P 500 has bounced back sharply after every recession we've had. And it often began a major rebound well before the end of the recession.

This bodes well for long-term investors. The current market downturn should provide an excellent buying opportunity for anyone with the patience to hold on for a few years. That's true whether a recession is really on the way or not.

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US STOCKS-Wall St to open higher on Microsoft, Alphabet earnings ahead of Fed

 

(For a Reuters live blog on U.S., UK and European stock markets, click or type LIVE/ in a news window.)

* Microsoft, Alphabet results spark rally in megacap stocks

* T-Mobile up after raising subscriber growth forecast

* Fed policy decision expected at 2 p.m. ET

* Boeing rises on keeping cash flow goal

* Futures up: Dow 0.49%, S&P 0.88%, Nasdaq 1.42% (Adds comments, updates prices throughout)

By Shreyashi Sanyal and Aniruddha Ghosh

July 27 (Reuters) - U.S. stock indexes were set to open higher on Wednesday as upbeat quarterly reports from Microsoft and Alphabet lifted sentiment ahead of a key U.S. interest rate decision later in the day.

Investors were on edge after a profit warning from top U.S. retailer Walmart fueled fears of a wider slowdown in spending as high inflation increased costs for consumers. The three indexes had closed sharply lower in the previous session.

Microsoft Corp rose 3.6% in premarket trading after it forecast revenue would grow by double digits this fiscal year on demand for cloud computing services.

Alphabet Inc added 4.1% as better-than-expected sales at Google search ads brought relief after social media firm Snap Inc's warning last week raised fears of a sharp ad market slowdown.

"A positive reaction from the latest quarterly numbers has been incredibly hard-won given the negative market sentiment surrounding broader tech," said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

The results sparked a rally in high-growth stocks. Amazon.com Inc, Meta Platforms Inc and Apple Inc rose ahead of their earnings this week.

Megacap growth stocks have been hammered this year as the Federal Reserve raised interest rates aggressively to tame decades-high inflation. Future cash flows on which valuation of these companies rests are discounted heavily when rates rise.

Investors widely expect the U.S. central bank to increase interest rates by another 75 basis points later on Wednesday, with focus likely to shift to how deeply signs of an economic slowdown have registered with its policymakers.

Money market traders were even placing about a one-in-four chance the Fed would surprise markets with a larger 1-percentage-point increase, as per CME Group's Fedwatch tool.

The decision is due at 2:00 pm ET (1800 GMT) and Fed Chair Jerome Powell's news conference half an hour later should elaborate on how the central bank views the recent economic data and at least hint at its next steps.

"If he (Powell) gets some kind of indication that inflation has come under control, then that's a sign to the market that their (Fed) moves are working and 50 basis points is in the cards for the next meeting," said Robert Pavlik, senior portfolio manager at Dakota Wealth Management.

At 8:25 a.m. ET, Dow e-minis were up 154 points, or 0.49%, S&P 500 e-minis were up 34.5 points, or 0.88%, and Nasdaq 100 e-minis were up 172.5 points, or 1.42%.

Shares of Boeing Co rose 2.9% after the planemaker stuck to its goal of generating free cash flow this year.

PayPal Holdings Inc jumped 6.9% after a report said activist investor Elliott Investment Management is building a stake in the fintech giant to push it to ramp up its cost-reduction efforts.

T-Mobile US Inc added 3.8% after it raised its subscriber growth forecast for the second time this year and exceeded quarterly profit expectations. (Reporting by Sruthi Shankar and Aniruddha Ghosh in Bengaluru; Editing by Sriraj Kalluvila)

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European markets head for mixed open ahead of Fed decision

 

• Global investors are focused today on the Fed's forthcoming monetary policy decision, due to be announced Wednesday following a two-day meeting.
• Markets are widely anticipating a second consecutive 75 basis point hike to interest rates.
• Like many central banks around the world, the Fed is acting aggressively to rein in inflation against a backdrop of slowing economic activity.

LONDON — European markets are set to open in mixed territory on Wednesday as investors look ahead to the latest monetary policy decision from the U.S. Federal Reserve.

Britain's FTSE is expected to open 16 points at 7,322, the German DAX is seen 47 points higher at 13,144, France's CAC is expected to open 9 points lower at 6,203, and Italy's FTSE MIB up 68 points at 21,228, according to data from IG.

Global investors are focused today on the Fed's forthcoming monetary policy decision, due to be announced Wednesday following a two-day meeting. Markets are widely anticipating a second consecutive 75 basis point hike to interest rates.

Like many central banks around the world, the Fed is acting aggressively to rein in inflation against a backdrop of slowing economic activity.

Concerns for the global economy deepened on Tuesday after the International Monetary Fund cut its global growth projections for 2022 and 2023, dubbing the world's economic outlook "gloomy and more uncertain."

The IMF now expects the global economy to grow 3.2% this year, before slowing further to a 2.9% GDP rate in 2023. The revisions mark a downgrade of 0.4 and 0.7 percentage points, respectively, from its April projections.

It's a busy day for earnings in Europe with Credit Suisse and Deutsche Bank reporting as well as Daimler, Danone, Carrefour and Airbus.

Data releases include GfK consumer sentiment for August

, French consumer confidence for July and the Russian employment rate for June.

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Asian stocks follow Wall Street ahead of likely US rate hike

BEIJING (AP) — Asian stock markets followed Wall Street lower Wednesday as traders prepared for a possible sharp interest rate hike from the Federal Reserve to cool inflation.

Shanghai, Hong Kong and South Korea declined. Tokyo advanced. Oil prices were little changed, staying below $100 per barrel.

Wall Street tumbled Tuesday after Walmart warned inflation that has spiked to a four-decade high of 9.1% is hurting American consumer spending.

The Fed on Wednesday is expected to announce a rate hike of up to three-quarters of a percentage point, triple its usual margin. That would match a similar increase last month, the U.S. central bank's biggest in 28 years.

Investors worry aggressive action against inflation by the Fed and central banks in Europe and Asia might derail global economic growth.

“The main risk at this stage is in fact an inflation ‘overkill’ with monetary tightening too abrupt, unnecessarily pushing up the unemployment rate,” said Thomas Costerg of Pictet Wealth Management in a report. Thomas said most economic indicators and lower commodity prices already point to slower inflation ahead.

© Provided by Associated PressSouth Korea Financial Markets

The Shanghai Composite Index lost 0.1% to 3,273.32 while Tokyo's Nikkei 225 advanced 0.1% to 27,692.89. The Hang Seng in Hong Kong sank 1.5% to 20,598.58.

The Kospi in Seoul retreated 0.6% to 2,398.48 and Sydney's S&P-ASX 200 shed 0.1% to 6,798.20.

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New Zealand advanced while Southeast Asian markets declined.

On Wall Street, the benchmark S&P 500 index fell 1.2% to 3,921.05. The Dow Jones Industrial Average dropped 0.7% to 31,761.54. The Nasdaq composite closed 1.9% lower at 11,562.57.

Walmart slumped 7.6% after the retail giant cut its profit outlook for the second quarter and the full year late Tuesday. It said rising prices for food and gasoline are forcing shoppers to cut back on more profitable discretionary items, particularly clothing.

The retailer's profit warning in the middle of the quarter is rare and raised worries about how the highest inflation in 40 years is affecting the entire retail sector.

Other major chains also fell. Target dropped 3.6%, Macy’s slid 7.2% and Kohl’s fell 9.1%.

Tech stocks retreated. Microsoft fell 2.7%, Amazon slid 5.2% and Facebook owner Meta Platforms dropped 4.5%.

General Motors fell 3.4% after its second-quarter profit fell 40% from a year ago. U.S. sales fell 15% after shortages of processor chips and other components left the company unable to deliver 95,000 vehicles during the quarter.

In energy markets, benchmark U.S. crude rose 30 cents to $95.28 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.72 on Tuesday to $94.98. Brent crude, the price basis for international oils, added 5 cents to $99.51 per barrel in London.

The dollar rose to 136.97 yen from Tuesday's 136.00 yen. The euro gained to $1.0145 from $1.0120.

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The recent stock-market recovery is likely just a bear market rally, and 'significant risks' lie ahead says Morgan Stanley exec

 

The recent uptick in stocks is just a bear-market rally and unsustainable, a Morgan Stanley exec said.

The outlook for equities is still damp, given that many investors and banks think a recession is inevitable.

A previous Morgan Stanley note forecasted a 20% S&P 500 sell-off amid serious worries about the market's future.

Some investors have been encouraged by the recent uptick in stocks, but a top wealth-management executive at Morgan Stanley thinks there are signs it's only a bear-market rally — and that significant dips may still lie ahead for the market.

"As tempting as it is for us to get excited about this rally and about some of the positive earnings that are coming up, we can't discount the fact that there still are so many risks that this market is facing," Katerina Simonetti, senior vice president at Morgan Stanley Private Wealth Management, said in an interview with Bloomberg.

As for why she doesn't see ongoing gains as sustaintable, Simonetti first pointed to investor sentiment, which still remains poor.

"Most of the investors actually think that, recession, either deep or shallow, is pretty inevitable," she said. It's a dark forecast that has been reiterated by Goldman Sachs, Morgan Stanley, Wells Fargo, Pimco, and other investment banks who think there's at least a mild recession to come.

Simonetti also noted that the market continues to be plagued by inflation and ongoing labor shortages, which could slam some firms with high production costs and low production. The most recent CPI report clocked in at a 41-year high at 9.1%, and as of July, 3.25 million workers dropped out of the labor force since February 2020, according to the Bureau of Labor Statistics.

"There are significant risks that are still facing this market," she said of market conditions. "We probably are going to seeing a lot of choppiness and some potential further declines in the market before the year-end."

Other firms on Wall Street are in agreement: earlier this month, analysts from Bank of America and Morgan Stanley slashed their end-of-year S&P 500 forecast by around 20%, casting some doubt on whether investors will be able to make it through the year with a positive return.

Read the original article on Business Insider

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Stock market live updates: Stock futures rise to start busiest week of the year

 

Stock futures were higher on Monday as investors brace for the busiest week of the year for corporate earnings and economic data. 

Near 6:30 a.m. ET, S&P 500, Dow, and Nasdaq futures were all up about 0.5%. 

Last week, all three major indexes logged weekly advances with the S&P 500's advance since mid-June lows coming in at about 8%. The Nasdaq has gained over 10% during this period. 

In the week ahead, quarterly results from over 170 companies in the S&P 500 are expected, with Wednesday's policy announcement from the Federal Reserve and Thursday's GDP data also expected to move markets. 

Monday will ease investors into the week, with results from Whirlpool (WHR) and NXP Semiconductor (NXPI) the biggest corporate results, while regional economic data from the Chicago Fed and Dallas Fed serve as the top economic releases. 

"Whether it’s a rally from an established bottom by the market or a 'bear market rally,' there’s fodder for argument between bulls and bears in any given moment in day to day market action," said John Stoltzfus, chief market strategist at Oppenheimer Asset Management in a note to clients on Monday. 

Looking at sector-level performance since June 16, Stoltzfus and his team note the rally since June 16 has been almost a mirror image of the market's performance this year. 

Ten of 11 S&P 500 sectors are higher since the mid-June lows, with only Energy (XLE) seeing losses over this period, falling over 7%. On a year-to-date basis, Energy remains the only S&P 500 sector higher in 2022 through Friday's close, up some 28%. 

The Consumer Discretionary (XLY) has led the market since mid-June, rising over 15% in the last five weeks. Year-to-date, this has been the second-worst performing sector in the S&P 500, falling 24% through Friday, with only Communication Services (XLC) — down almost 30% in 2022 — faring worse. 

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A new bull market in stocks won't get the green light until these 3 things happen, Bank of America says

The start of a new bull market in stocks will require three catalysts, according to Bank of America.

• While there's limited upside in the short-term because of depressed sentiment, sell the S&P 500 at 4,200, BofA said.
• "Don't think Wall St unwinds financial excesses of past 13 years with a 6-month garden variety bear market," BofA said.

The stock market is sending mixed messages to investors as sentiment remains depressed, but big economic risks remain top of mind, according to Bank of America.

Those mixed signals mean the start of a new bull market rally in stocks likely won't materialize until three catalysts happen, BofA's Michael Hartnett said in a Thursday note. 

The catalysts required to jumpstart the next bull market in stocks are a peak in inflation, a peak in interest rates, and a Fed pivot by 2023, according to the note. But a pause or cut in the Fed's interest rate hiking cycle is "unlikely without big recession and/or big credit event," Hartnett warned.

On the sentiment side, Hartnett said in a Thursday note that stock market investors should "buy now" as the "only time you've ever seen this level of pessimism and not made money being contrarian long was Lehman."

That depressed sentiment can be seen in BofA's Bull & Bear Indicator, which has been stuck at a reading of 0.0 for weeks. Other sentiment indicators like CNN's Fear & Greed Index and AAII's Investor Sentiment survey also show elevated bearish readings.

"Prices have discounted much bad news and sentiment [is at] rock-bottom," Hartnett said, referring to the more than 20% decline seen in the S&P 500 and Nasdaq 100 earlier this year.

But depressed sentiment doesn't represent an all clear for investors to fully jump back into the market, according to Hartnett, as big economic risks remain on the horizon. Those risks include still-hot inflation readings, rising interest rates, and the real chance of an economic recession.

Additionally, while investor sentiment is at depressed levels, actual fund flow data doesn't entirely back up those feelings. "Everyone [is] bearish but no one has sold," Hartnett said, highlighting that for every $100 of inflows into markets since the start of 2021, there has been just $3 worth of outflows from stocks. 

And for those reasons, investors should take some risk off the table and sell stocks when the S&P 500 rises to 4,200, which represents potential upside of about 6% from current levels.

"Positioning closest to green light for risk appetite/trade higher, but profits and policy don't yet give green light for new bull trend; and don't think Wall Street unwinds financial excesses of past 13 years with a 6-month garden variety bear market," Hartnett said. 

Source : Stock Market Outlook: No Green Light for Bull Rally Until 3 Things Happen (businessinsider.com)
 

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