good morning, this is jason ma and i’m still shaken by the huge stock market swings on thursday after the inflation report, which showed consumer prices rising 8.2% year over year in september, above expectations for an increase of 8.1%. While the headline rate fell from 8.3% in August, core inflation accelerated from 6.3% to 6.6%, cementing expectations of larger rate hikes from the Fed.
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In fact, investors raised expectations that the Federal Reserve will make another 75 basis point rate hike at its December meeting. the odds of a three-quarter point increase for the last meeting of 2022 rose to 61.8% from 32.5% the day before. and that would follow an increase of the same size that is widely seen for the November meeting.
Reading: Where is the stock market headed
The stubborn level of inflation is seen as keeping the fed aggressive next year as well. barclays analysts raised their forecasts for fed rate hikes in december and february to 75 and 50 basis points, respectively. That would push the fed funds rate to a range of 5% to 5.25%, up from barclays’ previous forecast of a range of 4.5% to 4.75%.
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1. The stock market’s sudden reversal to dizzying heights came as no surprise to technical analyst Katie Stockton of Fairlead Strategies, who said the S&P 500 was poised for a test of key support at 3505, which could come before a “meaningful relief rally.” “. She also noted that stocks have historically performed well in the month of October, which other analysts have called a “bear market killer.”
Any consolidating relief rally in the stock market could send the S&P 500 into its first major stress test around 3914, Stockton added. that would represent more than an additional 6% upside from current levels. Still, even if such a move occurs, she sees a deterioration in long-term momentum indicators and would use rallies as an opportunity to sell.
And regardless of whether October ends up being a bear market, the risks of a longer period of inflation and a global recession are rising, meaning US stocks could fall by the middle of next year. , according to s&p global.
research firm estimated the Fed could raise the fed funds rate by at least 5% to 5.25% by then, and will likely stay “higher for longer” compared to expectations current, which could send the stock down as much as 14.5% by mid-2023, analysts warned.
In the longer term, the outlook is not much better. High inflation reports could become the norm after more than a decade of inflation readings below 2%, according to Bank of America. That’s because underinvestment in energy production, sticky wage inflation, and demographic aging will drive core inflation for years to come.
“Historically, it takes an average of 10 years for a developed economy to return to 2% inflation [once] the 5% threshold is crossed,” Bofa said. and aggressive interest rate hikes by the Federal Reserve are likely to have little impact on inflation, as much of the trouble is on the supply side rather than the demand side.
what do you think? Are we in a new era of persistently high inflation? email email@example.com.
in other news:
2. US stock futures fall early on Friday, as investors await third-quarter earnings from big Wall Street banks. Meanwhile, Treasury Secretary Janet Yellen says the war in Ukraine will ruin Russia’s economy for years. here are the latest market moves.
3. earnings in sight: jpmorgan chase, morgan stanley, citigroup and others are reporting.
4. There is reason to believe the stock market is nearing its lowest point, according to RBC. US Chief Equity Strategist Lori Calvasina expects a recovery after some additional turmoil. she listed three reasons why there could be a double-digit recovery in 2023.
5. Wharton professor Jeremy Siegel has warned that the Federal Reserve will push the economy into a depression if they expect core inflation to fall back to 2%. He told CNBC on Thursday that the Fed’s focus on lagging indicators is setting the economy up for disaster. leading indicators of inflation are coming down substantially, especially in the real estate market, he added.
6. Biden administration officials are increasingly concerned that a cap on the price of Russian oil could backfire. Sources told Bloomberg that OPEC+’s cut to its oil production quota is undermining the Western effort to limit Moscow’s oil revenues. The cartel move has already added to volatility in markets, and a price cap on Russian oil could trigger a surge in crude, they said.
7. Russian President Vladimir Putin offered to redirect natural gas supplies to Europe through Turkey, which would become “Europe’s largest gas hub.” That’s because the Nord Stream natural gas pipelines linking Russia to Europe are damaged by alleged acts of sabotage. But Turkey’s energy minister said it was the first time he had heard of the idea.
8. morgan stanley now expects home price growth to turn negative in 2023 as mortgage rates rise to their highest levels since 2007. Average 30-year mortgage rates, by some measures, are now are above 7%. Here are four charts that show just how extreme conditions have become in the real estate market.
9. A real estate investor used various strategies to get cash up front to build his portfolio. He never made more than $52,000 in salary, but he did build a 25-unit real estate portfolio. Here are four strategies he used to buy investment properties.
10. the pound sterling jumped against the us dollar on thursday after reports that the uk government may shed additional parts of its mini-budget. prime minister liz truss has already abandoned a tax cut for the poorest they gain last week after their initial plan sent the exchange rate against the dollar to a record low last month. reports said the government may now allow the corporate tax rate to rise next year instead of remaining flat.
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curated by jason ma in los angeles. comments or advice? send an email to firstname.lastname@example.org.
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.