Stocks: Pressure on the S&P 500, Dow and Nasdaq100 – but the USD holds strong as sentiment deteriorates

Oct 7, 2022
VOT Research Desk

Key News – Insights and Analysis

• The S&P 500, Dow, and Nasdaq100 are still declining amid concerns about a worldwide recession brought on by tighter financial conditions.

• Initial unemployment claims reach their highest level since the final week of August, breaking a two-month decline.

• Everyone is waiting for tomorrow’s NFP report.

Today’s trading session saw a continuation of yesterday’s risk-averse sentiment. Investors have refocused their attention on the fundamentals of the economy following the rebalancing flows from the previous quarter, where the overall outlook for risk assets remains bleak. Interest rates are rising as a result of unchecked inflation, which is also supporting the strength of the US dollar.

Short- and long-term U.S. Treasury yields increased for the second day in a row. The two-year note yield, which is the most affected by changes in monetary policy, increased to 4.24 percent, while the 10-year note yield increased to 3.82 percent. While Kashkari, president of the Minneapolis Fed, mentioned that cracks may be seen in financial markets as the central bank transitions to a regime of higher interest rates, the president of the Atlanta Fed stated today that he sees rates at 4.0-4.5% by the end of the year.

The remarks cast doubt on financial stability as well as the possibility of a global recession brought on by tighter monetary policy. The health of Credit Suisse, the second-largest bank in Switzerland, was questioned earlier this week due to its weaker profile in comparison to that of its European investment banking peers. Countries accounting for a third of global GDP are anticipated to experience two consecutive quarters of decline, either this year or the following year, according to the International Monetary Fund (IMF).

As investors look for safe-haven assets, reducing demand for stocks, the US dollar continues to be the main beneficiary in this uncertain environment.

Despite weekly jobless claims reaching their highest level since the end of August, the Dow and S&P 500 lost 1.15 percent and 1.03 percent at the close. Ten of the eleven S&P sectors reported declines, despite some consolidation ahead of tomorrow’s employment numbers.

The depressing news that General Electric (GE) would be cutting 20% of its onshore wind energy workforce caused sentiment to remain negative.

However, the energy sector was the only one that made progress. After OPEC+ decided to cut supply by 2 million barrels per day in accordance with quotas, crude oil prices are close to a three-week high. Rumors that the U.S. government may consider lifting sanctions that would allow them to pump oil in Venezuela to alleviate fuel price pressures amid the OPEC+ decision led to gains for companies like Chevron.

Finally, the Nasdaq100 also suffered losses in the technology sector. The benchmark was down 0.76 percent at the close. The index was not significantly affected by news of Google’s new phone versions or the debut of its first smartwatch.

TECHNICAL PERSPECTIVE

Technically, the bulls tried to break through the crucial resistance area of 3805–3807, where the 38.2% Fibonacci level converges, despite the S&P 500 beginning lower. The bulls failed, which benefited the bears, as some consolidation was visible before tomorrow’s release of the economic data. Absent a dramatic change in market dynamics, fundamentals, risk-off sentiment, and moving averages all seem to point to a continuation of the downturn over the medium term. A crucial support level, 3733 needs to be watched closely. We cannot rule out a move towards 3660, a previous resistance level, if this zone is broken.

S&P 500

Nasdaq100

Dow Jones Industrial Average