Strong US Dollar Looks Set to Stay, Forcing Investors, Economies to Rethink

what is going on with the market

But could a second term for Joe Biden, coupled with Democrats taking control of both houses of Congress, set stocks up for a mammoth crash? Let’s dig into the challenges Biden and a Democratic Congress would face and let history be the ultimate judge of things. The VIX has remained below the all-important risk-on/risk-off level of 20 throughout the decline, even when considering Friday’s 7% surge in the volatility index. But Lee ultimately expects these risks to disperse, paving the way for stocks to resume their uptrend and hit new record highs before the end of the year. “Hedge funds have been net sellers of stocks, and have picked up their shorting activity significantly in recent weeks,” he said. “While stocks are extended to the upside, this backdrop suggests pullbacks should be used as buying opportunities,” Turnquist says.

Here’s what history says happens when Democrats have a unified government

Companies buying back their own stock have helped lift their earnings per share (EPS), which in turn has played a key role in expanding valuations. Quadrupling the existing buyback tax would make share repurchases less attractive and adversely impact earnings multiples at a time when stocks are quite pricey. Investors focused more on strong earnings from the likes of Delta (DAL), Dow component Walgreens (WBA) and Wall Street giant BlackRock (BLK). All 30 Dow stocks finished in green and nearly all of the S&P 500 members closed higher, led by strong gains from materials, energy and financial stocks. But after the better than expected inflation news was released, odds for that big of a hike have fallen to just 37.5%.

US stocks soar on a wild day for Wall Street

First-quarter earnings season kicks off in April, and analysts are expecting another quarter of modest growth. Wall Street analysts’ consensus estimates predict 3.6% earnings growth and 3.5% revenue growth for S&P 500 companies in the first quarter. Recession fears have subsided in recent months, but the New York Fed’s recession model still predicts a 58.3% chance of a U.S. recession sometime in the next 12 months. The bond market is currently pricing in a 95.8% chance the Federal Open Market Committee will continue to keep interest rates at their current levels at its next meeting, which concludes on May 1. Bond investors see a 63.6% chance the FOMC will begin cutting interest rates by June, according to CME Group.

Are stocks going to crash if Joe Biden wins in November and Democrats control Congress?

Boeing (BA) shares also tumbled more than 25% in the first quarter as the company’s quality control problems continue to weigh on its stock price. On the other end of the spectrum, struggling electric vehicle maker Tesla (TSLA) was the worst-performing stock in the S&P 500 in the first quarter. Growing competition in China is forcing Tesla to cut prices on its EVs, and Tesla’s once enviable automotive revenue growth slowed to just 3% year-over-year in the fourth quarter. AI server maker Super Micro Computer (SMCI) was the best-performing S&P 500 stock of the first quarter by a wide margin, gaining 255% year-to-date as investors continue to pile into AI stocks.

Investors cheered the news that inflation cooled off a bit in July. Oil stocks, which have been big market winners in 2022 as crude prices soared following Russia’s invasion of Ukraine, were notable market losers Wednesday. Looking out further, there are growing expectations that the Fed will be even more relaxed with rate hikes beyond September. Randy Frederick, managing director of trading and derivatives at the Schwab Center for Financial Research, said he thinks the Fed may boost rates by only a quarter of a point at its November meeting, and then hit pause after that. Before the release of Wednesday morning’s CPI report, fed funds futures trading on the CME were indicating that the market was pricing in a 68% chance of another three-quarter point rate hike in September.

It just goes to show that even in a bear market and with recession fears swirling due to concerns about uber-aggressive rate hikes from the Fed to try and stomp out inflation, investors still need to focus on fundamentals. “We continue to see a tale of two economies in the data,” said Sam Khater, Freddie Mac’s chief economist. “Strong job and wage growth are keeping consumers’ balance sheets positive, while lingering inflation, recession fears and housing affordability are driving housing demand down precipitously.” Mortgage rates have more than doubled in the past year as the Federal Reserve pushed ahead with its unprecedented campaign of hiking interest rates in order to tame soaring inflation.

The tech sector was hit particularly hard Tuesday, as investors ratcheted up their bets for a historically large interest rate hike by the Federal Reserve next week. “While rate cuts from the Federal Reserve would be welcome news for stocks, they are not a requirement for a strong market. The market has been able to rally for the past 18 months even with high interest rates and we believe stock investors are adjusting to this new normal of higher interest rates,” Straub says. Stocks staged a dramatic turnaround Thursday, bouncing back from significant losses at the start of trading and finishing sharply higher. Investors were disheartened at first by the Consumer Price Index report, which showed continued inflation pressures.

Only one stock in the tech-heavy Nasdaq 100 index was higher Tuesday…and not by much. Two policy proposals, in particular, could give Wall Street and investors reason to head for proverbial hills. To start with, President Biden noted during his State of the Union address in March that he wants to quadruple the share buyback tax to 4%.

Last June, Bespoke calculated the length of every bull and bear market in the S&P 500 dating back to the start of the Great Depression in September 1929. The data showed that while the average S&P 500 bear market lasted 286 calendar days, the typical bull market spanning 94 years stuck around for 1,011 calendar days, or about 3.5 times as long. Even though the hotter-than-hoped-for inflation report is sparking fears of more big rate hikes from the Federal Reserve, some optimists are starting to see light at the end of the Fed tightening tunnel. US stocks rose after Wednesday’s inflation report eased investors’ expectations on how quickly the Fed will raise interest rates. Belski thinks inflation pressures will take time to ebb and that investors shouldn’t expect prices to fall as quickly as they soared. That said, he is encouraged by the fact that commodity costs are starting to decline and supply chain issues are abating.

Hopes of a slower pace of Fed tightening helped fuel the market rally Wednesday. But what’s particularly noteworthy is that many of Wall Street’s biggest winners are stocks with ties to the housing market. Economists expected prices would fall very slightly in August as gas prices have dropped for 91 straight days. Instead, prices rose, giving investors a collective heart attack over the Fed’s plans to curb inflation. The situation on Wall Street was ugly midmorning Tuesday, as investors grew increasingly nervous about the prospect of even higher rate hikes that could last for a longer period of time. That prompted Glenmede chief investment officer of private wealth Jason Pride to note in a report that these are the most dramatic annual price increases for food since Sony released the Walkman portable cassette player.

Domino’s shares rose 9%, making it the top performer in the S&P 500. Meats, poultry, fish and eggs rose 0.4% over the month and beverages increased 0.6%. Fruits and vegetables rose 1.6% for the month, while cereals and bakery products rose 0.9%. Other groceries increased 0.5% in September, following a 1.1% increase in August. Some traders were suggesting that the market may (finally) have hit bottom after the S&P 500 briefly dipped below the key 3,500 level before rebounding. If those gains hold, the Dow will wind up with its biggest percentage and points gains of 2022, topping a 2.8% jump from early May.

The Dow was down 1,300 points, or 4%, with minutes to go before the closing bell mercifully rings on Wall Street. But investors have another inflation report to (fear? dread? seems unlikely that anyone is looking forward quebex to it) on Wednesday. Despite the challenges, S&P 500 companies reported 3.6% year-over-year earnings growth in the fourth quarter, with seven out of eleven market sectors reporting positive earnings growth.

That added to fears that multiple big rate hikes from the Federal Reserve could be ahead. It was a broad-based slide, with all eleven sectors of the market heading lower. Those three groups stand to get hit the hardest if the Federal Reserve raises interest rates even more aggressively to try and get inflation under control.

Investors are incredibly anxious about inflation, which refuses to go away. The Dow plummeted more than 1,050 points, or 3.3%, in late afternoon trading Tuesday. The S&P 500 and Nasdaq fared even worse, tumbling 3.6% and 4.5% respectively.

Traders may have made the mistake of assuming that inflation would soon no longer be a major economic problem. Wall Street’s big fear is that higher rates will eventually lead to an economic slowdown or even a recession. As stocks settle after the trading day, levels might still change slightly.

One of the most convincing signs that a soft landing is possible has been the resilience of the U.S. labor market. Reaching new all-time highs in March, the S&P 500 has finished its best first quarter since 2019. Drugstore giant Walgreens (WBA) was one of the few Dow winners, gaining 3% after reporting a better-than-expected profit and healthy guidance for 2023. Investors are worried about the fact that bookings, a key measure of future revenue, fell 4% in the quarter.

what is going on with the market

But a report from real estate brokerage firm Redfin (RDFN), also released Thursday, showed that the median monthly rent nationwide fell 2.5% in September. The government said in the CPI report that both rent and owners’ equivalent rent (which measures how much a homeowner estimates they could get if they rented their property) rose 0.8% from August. The increase in owner’s equivalent rent was the biggest since June 1990. What’s more, the company’s average bookings per daily active user (ABPDAU) number, which looks at how much money people are spending to buy virtual goods, plunged 21%. In other words, people are keeping a closer watch on how they spend their Robux due to inflation concerns. Even though inflation cooled off considerably in July, the cost of living remains uncomfortably high and may not get back to normal levels anytime soon.

Lower energy costs should boost profits, and consumers may also look to travel more if inflation fears ebb. Norwegian (NCLH), Royal Caribbean (RCL) and Carnival (CCL) all rose more than 10%. The three stocks are still down sharply this year, but investors are apparently betting that the worst may be over. What’s more, Peterson is also predicting a recession in the next few months.

Not only would businesses be discouraged from buying back their stock, but they’d have less disposable income to work with if corporate tax rates rise. The last time the VIX experienced an inversion and then subsequent uninversion was in March 2023, which marked a local bottom in the stock market and was followed by a massive year-long rally to the upside. The multi-week stock market sell-off that began at the start of the month is nearing its end, according to Fundstrat’s Tom Lee. Having entered the year predicting the greenback would decline, investors have been forced into a rethink by a red-hot US economy and sticky inflation requiring the Federal Reserve to hold off cutting interest rates.

  1. Although annual inflation fell compared to July, it didn’t fall as much as economists expected.
  2. What’s more, Peterson is also predicting a recession in the next few months.
  3. One of the most convincing signs that a soft landing is possible has been the resilience of the U.S. labor market.
  4. However, the U.S. unemployment rate of 3.9% was up slightly from January and is currently at its highest level since January 2022.
  5. The S&P 500 has experienced this pace of losses seven times since October 2022, and in five of those seven times, it served as an immediate tradeable low.
  6. Lee pointed to recent commentary from Fundstrat technical strategist Mark Newton, who argues that a bottom in the stock market could appear by early next week.

Patience and perspective have a way of rewarding investors, regardless of which political party is in power. If Joe Biden wins in November and Democrats control Congress, investors with a long-term mindset should fare well. Perhaps the most-compelling data set on the power of patience and perspective was offered by the analysts at Bespoke Investment Group. The uninversion of the VIX means that “markets see lower probabilities of a major high volatility event in the near term,” Lee said. “The corporate buyback bid remains robust. We’re modeling $925 billion of repurchases this year,” he said, citing Goldman Sachs’ research. Sam Millette, director of fixed income for Commonwealth Financial Network, says all indicators suggest initial estimates for first-quarter U.S.

It needs to go up more than 932 points for it to be the largest point increase. We’re running out of superlatives to describe today’s action on Wall Street. With a little less than an hour to go before the closing bell, the Dow was up more than 950 points, or 3.3%. New signs of lingering inflation have driven yields to the highest levels of the year.

Elevated interest rates increase borrowing costs for both U.S. consumers and corporations. Typically, that puts pressure on the economy and the stock market. Inflation also increases input costs for U.S. companies, squeezing profit margins and weighing on earnings.

Patterson said the Fed — and investors — need to still be concerned about how so-called core inflation (excluding food and energy) has yet to cool dramatically. Economists at Barclays said in a report Thursday that they now expect another three-quarters of a percentage point rate increase in November and December and then a half-point hike at the Fed’s February 2023 meeting. “There is a disconnect. With Redfin coming out and saying there is a decline in rents, maybe the Fed has something to glob on to that will allow it to slow the rate hikes,” said Lamar Villere, portfolio manager with Villere & Co. It was a dramatic turnaround for stocks, which plunged after the opening bell after the CPI report came out. The headline CPI for July rose 8.5% year-over-year and remained flat from June. Economists had expected prices to increase 8.7% annually and 0.2% between June and July.

After taking a breather last week, mortgage rates rose again — moving even closer to 7%. Barclays predicts that the central bank will lower rates by a quarter of a point at each of its last three meetings in 2023. And Belski told Kosik he thinks many investors still haven’t factored that into their earnings forecasts. Even though stocks soared in July after a rotten first half of 2022, “People are still too bearish,” Belksi said. On the other side of the coin, periods of economic growth often stick around for multiple years. Two of the expansions since World War II lasted longer than 10 years.

The bigger worry is there have only been six total instances in 153 years where the Shiller P/E has surpassed 30 during a bull market. Following the previous five instances, the S&P 500 or Dow Jones Industrial Average went on to lose 20% to 89% of their respective value. Anytime valuations become extended, it eventually results in a big pullback for stocks. As of the closing bell on April 24, the S&P 500’s Shiller price-to-earnings (P/E) ratio (also known as the cyclically adjusted price-to-earnings ratio, or CAPE ratio) was well above its historic norm.

The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on, top-rated podcasts, and non-profit The Motley Fool Foundation. The put-to-call ratio measures options buying activity of bearish puts and bullish calls, and its most recent reading shows an elevated amount of bearish activity, with investors overwhelmingly favoring buying puts instead of calls. According to Lee, if the VIX falls below 18, it would serve as a bullish sign for renewed upside in stock prices. Lee took solace in the fact that the VIX, which measures fear on Wall Street, has been rather subdued amid the recent stock market volatility. These are the 5 reasons Lee believes the current stock market decline is nearing its end.

Investors appear to be betting that housing sales, which had started to cool as prices and mortgage rates climbed, may not fall off a cliff after all if the Fed becomes less aggressive. The market is cheering the fact that the rate of consumer price increases edged lower in July. Major tech stocks rose on the news, Facebook parent company Meta was up by 5.8% and Netflix was 6% higher. Stocks had been on a four-day winning streak prior to Tuesday’s plunge. One strategist suggested that there could be more market pain ahead.

There’s normally little reason to pay much attention to M2 because the U.S. economy expands with such consistency over long periods. But after peaking in March 2022, M2 money supply has declined by nearly 4.4%. It’s the first time we’ve witnessed a year-over-year decline in M2 of at least 2% since the Great Depression.