S&P 500 Losses Widen amid Yields Rise Before of Important Fed Meeting.

VOT Research Desk

Nov 2,2022

Market Analytics and Considerations

Due to a rise in U.S. Treasury rates and the 2-year yield charging towards its cycle highs following stronger-than-expected U.S. economic data, U.S. stocks lost their gains in the morning and ended the day in a moderately lower range on Tuesday.

First, the JOLTS survey revealed that the number of open positions increased to 10.72 million in September, exceeding estimates of 9.85 million.

Despite the Federal Reserve’s best efforts to slow hiring momentum, this robust outturn indicates that there are 1.9 vacancies for every worker who is available. Second, manufacturing activity in October slowed less than anticipated, coming in at 50.2, as opposed to the 50.00 forecast, indicating that the goods-producing sector is resilient

When everything was said and done, telecommunications and consumer discretionary led the S&P’s decline of 0.41 percent to 3,856. Amazon (AMZN) and Alphabet (GOOG) stock prices plunged, causing the Nasdaq 100 to fall by 1.02 percent to 11,289 points.

From a broader point of view, the positive macro data that were released this morning suggest that demand has not yet significantly cooled in order to reduce inflationary pressures. This suggests that the Fed may have the margin to step on the brakes a little bit harder and for a little bit longer in order to restore price stability.

When the FOMC makes its decision in November on Wednesday, traders will have a chance to evaluate the outlook for hikes. Borrowing costs are expected to rise by 75 basis points to 3.75-4.0%, the tightest range since early 2008.Given that this meeting does not include macroeconomic projections, guidance will be the primary focus because this move is completely discounted.

Recent commentary suggests that the bank may be able to refine its message and prepare the market for a shift toward a more gradual pace of tightening. However, a less front-loaded cycle now could just result in more spread-out hikes in 2023, so this scenario should not be mistaken for a pivot

In any case, Wall Street may welcome a cautious and data-dependent approach that would permit assessing the effects of cumulative tightening on the economy as evidence that we have passed the Fed’s peak hawkishness. Risk assets may rise as a result of this. However, if the Fed does not change its stance and maintains an aggressive tone, all bets are off. The subsequent leg lower for stocks could be triggered by this scenario.

US 500 Bearish Perspective

S&P 500 DAILY CHART