[b]S&P looks fragile[/b]
US stock indices sold off sharply yesterday, with the S&P 500 crashing below 4,200 to hit its lowest level since May. There was an bounce this morning, thanks in part to a stellar set of earnings from Amazon. Revenue was up 13% for the quarter, and earnings per share came in at $0.94 versus $0.58 expected. A restructuring plan which included 17,000 layoffs was a significant factor in the strong numbers. The stock was up over 8% by the European close.
But the broader market came off its best levels, and gave back much of its early gains. How the market behaves going into Friday’s close could tell us whether we’ve seen the worst of the selling, or if we can expect further weakness into the year-end. We’re approaching the last few trading sessions in October and it’s fair to say that the month hasn’t lived up to early hopes. Many analysts were predicting a recovery this month following a dismal September, but we’re on course for another losing month with the NASDAQ now in correction territory, down over 10% from its summer highs.
Yesterday, the US advance GDP came in at +4.9% annualised for the third quarter, well above even the top estimates of +4.3%. The number was driven by strong consumer spending, thanks to the robust employment situation, wages keeping pace with inflation and strong business investment. Most commentators don’t expect a repeat of this going forward. But it was enough to rattle the stock market as it reinforces the Fed’s hand for tightening monetary policy further. Of course, the data is backward-looking and subject to many revisions. But it appears to fly in the face of the prediction from former ‘Bond King’ Bill Gross who tweeted on Monday that a US recession would start before the year-end.
Earlier today the Federal Reserve’s preferred inflation measure, Core PCE (Personal Consumption Expenditures) was released. This is the number which is the basis of the Fed’s 2% inflation target. It came in at +3.7% year-on-year, as expected, and a tad lower than last month’s +3.8%. It’s a move in the right direction, but still well above target. Perhaps a continued decline in US equities will be the one thing that stops the Fed from raising rates further.
But the broader market came off its best levels, and gave back much of its early gains. How the market behaves going into Friday’s close could tell us whether we’ve seen the worst of the selling, or if we can expect further weakness into the year-end. We’re approaching the last few trading sessions in October and it’s fair to say that the month hasn’t lived up to early hopes. Many analysts were predicting a recovery this month following a dismal September, but we’re on course for another losing month with the NASDAQ now in correction territory, down over 10% from its summer highs.
Yesterday, the US advance GDP came in at +4.9% annualised for the third quarter, well above even the top estimates of +4.3%. The number was driven by strong consumer spending, thanks to the robust employment situation, wages keeping pace with inflation and strong business investment. Most commentators don’t expect a repeat of this going forward. But it was enough to rattle the stock market as it reinforces the Fed’s hand for tightening monetary policy further. Of course, the data is backward-looking and subject to many revisions. But it appears to fly in the face of the prediction from former ‘Bond King’ Bill Gross who tweeted on Monday that a US recession would start before the year-end.
Earlier today the Federal Reserve’s preferred inflation measure, Core PCE (Personal Consumption Expenditures) was released. This is the number which is the basis of the Fed’s 2% inflation target. It came in at +3.7% year-on-year, as expected, and a tad lower than last month’s +3.8%. It’s a move in the right direction, but still well above target. Perhaps a continued decline in US equities will be the one thing that stops the Fed from raising rates further.
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