4.08pm: US markets consolidate after two days of strong gains
US stocks ended down, but off earlier lows, consolidating some of the strong gains of the past two days.
By the close The Dow Jones Industrial Average was down 42 points to 30,275, the S&P 500 lost 7 points to 3,784 and the Nasdaq Composite slipped 28 points to 11,149.
“It’s a moment of pause for the market to reflect on how durable the rally the past two days actually could turn out to be,” said Yung-Yu Ma, chief investment strategist for BMO Wealth Management.
“The market’s making the assessment that it’s really going to take a lot for the Fed to make a dovish pivot. Yes, the JOLTS number was extremely welcome, no question about that. But that is really the tip of the iceberg in terms of what the Fed needs to actually take a softer tone.”
Wednesday’s moves came after the benchmark S&P 500 surged 5.7% in the past two days – its largest back-to-back gain in more than two years. Carson Group’s Ryan Detrick pointed out that advance marked the best start to a new quarter since Q2 of 1938.
In economic data, the ADP's private employment report showed the US economy added 208,000 jobs in September suggesting the jobs market was still in rude health and all eyes now will be on Friday’s non-farm payrolls numbers.
OPEC+ approved its largest production cut since 2020 – of 2 million barrels a day. West Texas Intermediate (WTI) crude oil rose 1.4% to settle at $87.76 per barrel and Goldman Sachs (NYSE:GS) analysts called the OPEC+ cut "very bullish" for oil and raised its price target to $110 per barrel.
12.05pm: US markets fear inflation again
US indices continued to lose ground at noon as traders reacted to the OPEC+ decision to reduce production by 2 million barrels per day from November, with OPEC and its allies seeking to kick-start a recovery in crude prices.
At midday, the S&P 500 was down by 1.4% at 3,739, the Nasdaq Composite was down by 1.8% at 10,978, while the Dow Jones was down by 1.1% to 29,973 points.
Chris Beauchamp, chief market analyst at online trading platform IG, said equities have faltered after two days of gains, but OPEC’s move to lop off a slab of daily oil output has resulted in a rally for crude prices.
“No doubt the OPEC ministers might have hoped for a bigger reaction from the oil market than the one they actually got," Beauchamp wrote in a report.
"Expectations of a 1 million barrel per day cut were trounced with the much bigger move, but a 1%+ move on the day is not to be sniffed at. Much now depends on whether the data improves from here to lay some of the recession fears to rest.”
He noted that the elimination of 2 million barrels of daily oil output, “raises the spectre of inflation again, just as the market began to hope that oil prices had calmed down.”
Oil prices had fallen to roughly US$80 a barrel from more than $120 in early June, despite calls from American President Joe Biden’s administration for OPEC to increase output to help the economy.
At midday, West Texas Intermediate was up by 1.5%, trading at US$87.80 a barrel.
The other major movers included leading oilfield service player Schlumberger, up 6.9% on its plans to make a 30% cut in direct and indirect emissions by as early as 2025, and possibly be down to 50% net-zero GHG emissions by 2030.
Lamb Weston Holdings hit a new 52-week high, up by 4.66%, as the company beat 1Q earnings estimates.
On the downside, solar tech company Enphase Energy fell by over 13%, Lumen Technologies was down over 11% and Vornado Realty Trust slid 8.8%, hitting a new 52-week low.
9.35am: Seeing red
After two days of solid gains, the tides have turned with stocks falling firmly back into the red on Wednesday morning in part fueled by stronger-than-expected jobs data.
ADP private sector payrolls rose by 208,000 in September, up from an upwardly revised 185,000 in August and above the consensus analyst expectation of 200,000.
Forex.com market analyst Fiona Cincotta noted, while weak data earlier in the week fueled expectations that the Fed could consider a less hawkish stance, the market appears to have come to its senses.
“With inflation still over four times the Fed’s 2% target and the jobs market still strong, any dovish pivot is likely still a long way off,” Cincotta said.
Just after the market opened, the Dow Jones Industrial Average had slid 267 points or 0.9% at 30,049 points, the S&P 500 had dropped 36 points or 1% at 3,754 points, and the Nasdaq Composite had shed 115 points or 1% at 11,064 points.
Twitter Inc (NYSE:TWTR), which soared 22% yesterday on the news that Tesla Inc (NASDAQ:TSLA) CEO Elon Musk will go ahead with his $44 billion purchase of the social media platform after all, was down about 2.3% at $50.70 per share.
6.30am: Pullback?
US stocks are expected to open lower on Wednesday, snapping a two-day rally, as investors consider the economic prospects for the world’s biggest economy amid stubbornly high inflation and rising interest rates.
The gains on Monday and Tuesday follow a dismal third quarter, which saw steep stock market falls and, if anything, underscore the level of volatility at present.
Futures for the Dow Jones Industrial Average were down 0.9% in pre-market trading, while those for the S&P 500 fell 0.9% and contracts for the Nasdaq-100 were 0.8% lower.
“We shouldn’t forget that the big gains, like the ones we saw yesterday, aren’t stable, simply because they are ‘too big to be stable’,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.
“In fact, a 3% jump in the S&P 500 is almost as disquieting as a 3% fall, because it is sign of high volatility. And high volatility is a characteristic of bear market,” she added.
The Dow Jones Industrial Average rose 2.8% in regular trading hours on Tuesday, while the S&P 500 advanced 3.06%, and the Nasdaq Composite soared 3.34%.
Ozkardeskaya noted that the rally on Tuesday was also partly driven by a short squeeze, as the most-shorted stocks were among the best performers during yesterday’s trading session. A short squeeze happens when investors betting on a stock to fall find that it rises instead, causing investors to bail out to cut their losses, and in turn, pushing the stocks even higher.
Data out yesterday, meanwhile, showed emerging weakness in the labor market, with US job openings dropping sharply in August.
“So, it is possible that the US jobs market cools down in the next few months. It’s yet to be seen how fast the job losses could help tame inflation in the US. We hope, fast enough!,” said Ozkardeskaya.
“Today, the ADP report is expected to print 200,000 new private job additions in the US. A soft figure is what every investor is secretly praying for. If the soft jobs data is what could stop the Fed from battering the world, well, then, soft data is what people want.”
On Friday, focus will be on the crucial non-farm payrolls data.
The Federal Reserve has delivered three 75 basis point interest rate hikes this year and is expected to keep on raising interest rates as it attempts to tackle runaway inflation but its moves are also expected to dampen growth. Investors fear that the US will be stuck in a prolonged recession as a result. They will be hoping that softer labor market data will dissuade rate setters from hiking interest rates aggressively.
Contact the author at jon.hopkins@proactiveinvestors.com