US stocks swung on Tuesday, while Treasury yields rose as the stock and bond markets continued to slide ahead of the third-quarter earnings season.
The S&P 500 (^GSPC) is down 0.3% after falling 1% to briefly touch a two-year low, while the Dow Jones Industrial Average (^DJI) is up 150 points, or 0.5%. The Nasdaq Composite (^IXIC) is down nearly 0.6% after the tech-heavy index reached its lowest level since July 2020 to start the week. Meanwhile, benchmark 10-year Treasuries tested 4% again.
Investors are going through a murky week marked by producer and consumer inflation data and first reporters for the third-quarter earnings season, which includes four of the nation’s largest banks by assets.
Markets remain on edge due to the government’s Consumer Price Index (CPI) due on Thursday, which is likely to show that inflation has remained consistently high despite the aggressive intervention by the Federal Reserve to slow the economy. After the August release of the Consumer Price Index on September 13, the S&P 500 fell 4.3% on its worst day of the year so far.
Analysts at JPMorgan warned in a note on Tuesday that if the September reading comes in 8.3% higher than the previous month, the S&P 500 could drop 5%.
In a rare admission, Federal Reserve Vice Chair Lail Brainard said policy makers should be careful in raising prices amid global macroeconomic uncertainty as previous hikes are still working their way through the economy.
She said Monday at the National Annual Meeting of the Association for Business Economics, that the US central bank appears to be on track for a fourth increase of 75 basis points in November.
On Monday, JPMorgan CEO Jamie Dimon said in an interview with CNBC that stocks could fall “by 20%” from current levels, depending on the economic outcome of the Fed’s actions, and also warned that the US economy could go into recession by mid-2023.
Across the Atlantic, the Bank of England expanded its purchases of emergency bonds for the second time this week after selling across long-term debt securities on Monday in an attempt to stabilize financial conditions.
“The dysfunction of this market and the potential for reinforcing ‘quick selling’ dynamics poses a material risk to the UK’s financial stability,” the bank warned in a statement.
The Bank of England’s move helped push gold prices higher, but did little to help the weakening British pound as the US dollar strengthened and continued to pressure other currencies.
In the US, the stability of the US currency resulting from monetary actions by the Federal Reserve has been a pain for US companies, reducing sales and profits by trampling on income earned abroad from products purchased in weaker currencies. Currency headwinds have dealt a blow to companies like Nike (NKE) and FedEx (FDX) in recent weeks and are likely to be cited by others announcing financial results.
“We may hear more in the coming weeks about the pressures that an exceptionally strong dollar could put on US exports, and thus US corporate profits, but the dollar’s strength could also play a role in pushing the Fed back from its tightening policy,” said Chris Larkin, managing director. To trade in E*TRADE at Morgan Stanley, in an email comment. “Although the continued strength of the dollar ultimately contributes to the Fed’s shift from raising to lowering interest rates, the timing of such a pivot remains uncertain, and may not alters the downward trajectory of corporate earnings.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter Tweet embed
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