The Asset Guidance Group Weekly Update For the week ending September 30, 2022

3 Things… 

  1. Equity Trends: Thursday the S&P500 pierced its June 2022 low, trend is DOWN and 13.74% below its 200-day MA; the NASDAQ also pierced its June 2022 low and is about 16.51% below its 200-day MA, strong DOWN trend; Dow is 2.07% below its June 2022 low and 12.54% below its 200-day MA; 4.8% of the S&P 500 and 16.81% of the NASDAQ, respectively, are above their 50-Days; Bulls20:Bears61; VIX 30.72; [1]
  2. Bonds:

    U.S. Treasury yields have been on a tear, as traders digest comments from several Fed speakers earlier in the week that suggested more rate hikes ahead.

    The benchmark 10-year Treasury yield briefly topped 4% in Wednesday trading in New York, before falling 25 basis points to yield 3.705% — the biggest decline since 2020 — after the Bank of England announced a bond-buying plan to stabilize British markets.

    It was trading at a yield of 3.8461% in Thursday afternoon trading in Asia. [2]

  3. Sectors: Best 3-month sectors: Consumer Discretionary (+5.08%); Energy (+2.55%);  Financials (-2.18%); Crypto/Bitcoin +0.46%; [3]

This Week’s Quotable

“I think the Fed has to be really careful here. If they keep going without pausing, it’s really going to create a real possibility of a significant recession,” Ed Yardeni, president of Yardeni Research, told CNBC “Squawk Box Asia” on Wednesday. [5]

Recent Highlights

  • PCE/Core PCE Inflation increased by 0.1%/0.6% (09/30)
  • Personal Spending increased by 0.4% (09/30)
  • Personal Income increased by 0.3% (09/30)
  • Personal Savings Rate remained flat at 3.5% (09/30)

In the Markets

Wall Street closed sharply lower on Thursday and gave up all recovered ground of the last trading session. Market participants are gradually adjusting the cost of an imminent recession in stock valuations. Investors’ sentiment has dented significantly as a global technology tycoon is assessing demand shortage going forward. All the three major stock indexes ended in negative territory.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) slid 1.5% or 458.13 points to close at 29,225.61. The blue-chip index has recorded a new closing low in 2022. Notably, 27 components of the 30-stock index ended in negative territory while 2 in green and 1 remained unchanged.  

The tech-heavy Nasdaq Composite finished at 10,737.50, tumbling 2.3% or 314.13 points  due to disappointing performance of large-cap technology stocks.

The S&P 500 dropped 2.1% to end at 3,640.47, marking its lowest closing since Nov 30, 2020. Ten out of 11 broad sectors of the benchmark index closed in negative zone. The Communication Services Select Sector SPDR (XLC), the Real Estate Select Sector SPDR (XLRE), the Consumer Discretionary Select Sector SPDR (XLY) and the Technology Select Sector SPDR (XLK) plunged 2.4%, 2.8%, 3.5% and 2.6%, respectively. 

The fear-gauge CBOE Volatility Index (VIX) was up 5.5% to 31.84. A total of 11.6 billion shares were traded on Thursday, higher than the last 20-session average of 11.6 billion. The S&P 500 recorded no new 52-week highs and 106 new 52-week lows. The Nasdaq Composite posted 14 new 52-week and 518 new lows.

Technology Stocks Lead Market Mahem

Yesterday’s market turmoil was mainly owing to a rare negative news for global technology behemoth Apple Inc. (AAPL). On Sep 28, Bloomberg reported that Apple plans not to increase the production of its newly launched iPhone as the demand failed to match the company’s expectation.

Per Bloomberg, Apple told its suppliers not to increase assembly of its flagship iPhone 14 product family. Earlier the company decided to increase the production of iPhone 14 by 6 million units in the second half of 2022.

Apple is trying reduce its dependence on China for the iPhone production line. Earlier this month, the company said that it has shifted some of its production facility from China to India. Consequently, the shares of Apple dropped 4.9%.

Earlier several U.S. corporate behemoths have opted for workforce retrenchment and other cost cutting measures. Various retail bigwigs have already warned for slowing demand. Social media companies are suffering from a stiff reduction of digital advertisement.

Despite a global financial crisis due to soaring U.S. dollar price, various important Fed officials have said that they are in favor of rigorous interest rate hike so long price stability restored. Market participants are worried that the Fed may continue with ultra-hawkish monetary policies even if the U.S. economy enters a recession.

Economic Data

The Department of Labor reported that the weekly jobless claims fell to a 5-month low at 193,000 for the week ended Sep 24. The consensus estimate was 216,000. The Data for the previous week was revised downward to 209,000 from 213,000 reported earlier. Continuing claims that reported a week behind fell 29,000 to 1.347 million.

The third estimate of the second-quarter 2022 U.S. GDP contracted 0.6%, same with that of the second estimate. The personal consumption expenditure (PCE) inflation came in at 7.3% in the second quarter 2022 compared with 7.5% in the first quarter. The core PCE inflation (excluding the volatile food and energy items) increased 4.7% in the second quarter compared with 5.6% in the first quarter. [6]

Sources: [1][3][4] Stockcharts.com; [2] cnbc.com; stockcharts.com; [5] Economist Ed Yardeni reveals what the Federal Reserve should do next (cnbc.com); [6] Zacks Professional Services, “Today’s Key Market and Economic News” for Friday September 30, 2022; 

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