S&P 500 Bounces Off Make-Or-Break Technical Level: Market Recap

(Bloomberg) – Stocks posted big gains on Monday, with the S&P 500 closing above a key technical level and another giant bank posting strong results. A reversal of the UK’s broad fiscal stimulus also boosted traders’ sentiment.

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The magnitude of the rally was so strong that at one point more than 99% of companies in the benchmark US equity index were up, with the gauge moving away from its 200-week moving average. The tech-heavy Nasdaq 100 outperformed, making its biggest gain since July.

A rout in the S&P 500 left the index testing a “serious support floor,” which could lead to a technical rally, Morgan Stanley’s Mike Wilson wrote. The strategist, who is one of Wall Street’s most prominent bearish voices, said he “wouldn’t rule out” the metric reaching around 4,150. That’s 13% above current levels.

“Equities could be ripe for a near-term rebound,” wrote strategists at BCA Research led by Roukaya Ibrahim. “Although economic conditions have not changed – and therefore do not warrant a change in the cyclical outlook – technical conditions point to a potential rebound.”

The arrival of earnings has historically served as a cure for struggling stocks, lifting the S&P 500 about 76% of the time since 2013. Bone-cut earnings estimates make hurdles easy to jump.

For Jeffrey Buchbinder of LPL Financial, while expectations are indeed very low for the current earnings season, forecasts for 2023 still remain high.

“The hardest part is figuring out how far the estimates need to fall and how much of a headwind this haircut will be for stocks as they try to navigate their way out of this bear market,” he said. he added.

Markets historically bottomed out when investors began to look at significantly looser policy over the next six to 12 months, when a bottom in economic activity was in sight, or when valuations reflected a “case scenario”. bearish,” according to Mark Haefele of UBS Global Wealth Management. .

“We don’t believe these conditions are met,” Haefele added. “Despite heightened risks to growth and rising volatility, equity markets have neither become cheaper relative to bonds nor yet priced in a material slowdown in growth and earnings.”

Some 86% of respondents to the latest MLIV Pulse survey expect US markets to rally first, with investors slightly favoring equities over bonds. The result suggests that the long-standing premium for equities will remain in place – and as the Federal Reserve’s spike in aggressiveness becomes apparent, traders will be poised to return to Treasury markets in droves.

The latest U.S. recession probability models from Bloomberg economists Anna Wong and Eliza Winger predict a higher probability of such an event across all time periods – the 12-month estimate of a slowdown by October 2023 reaching 100%. This is a 65% increase for the comparable period in the previous update.

Monday’s data showed a measure of manufacturing in New York state contracted for a third month in October, and a greater share of factories were more optimistic about business conditions at the start of 2023. The measure of prices paid rose for the first time since June.

“This is not a Pollyanna moment,” said Robert Teeter, managing director of Silvercrest Asset Management. “Inflation clearly remains an issue until proven otherwise, and disappointing earnings, particularly from consumer-facing businesses, could trigger another tough period, with recession fears to the fore.”

Key events this week:

  • U.S. Industrial Production, NAHB Housing Market Index, Tuesday

  • Fed’s Neel Kashkari speaks on Tuesday

  • Eurozone CPI, Wednesday

  • EIA Crude Oil Inventory Report, Wednesday

  • US MBA Mortgage Applications, Building Permits, Housing Starts, Fed Beige Book, Wednesday

  • Fed’s Neel Kashkari, Charles Evans and James Bullard speak on Wednesday

  • US existing home sales, initial jobless claims, Conference Board leading index, Thursday

  • Eurozone consumer confidence, Friday

Some of the major movements in the markets:

Shares

  • The S&P 500 rose 2.7% at 4 p.m. PT

  • The Nasdaq 100 rose 3.5%

  • The Dow Jones Industrial Average rose 1.9%

  • The MSCI World index rose 2.1%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.7%

  • The euro rose 1.2% to $0.9837

  • The British pound rose 1.6% to hit $1.1352

  • The Japanese yen fell 0.2% to 149.04 per dollar

Cryptocurrencies

  • Bitcoin rose 1% to $19,527.35

  • Ether rose 1.1% to $1,325.63

Obligations

  • The 10-year Treasury yield was little changed at 4.02%

  • Germany’s 10-year yield fell eight basis points to 2.27%

  • The UK 10-year yield fell 36 basis points to 3.98%

Goods

  • West Texas Intermediate crude fell 0.2% to $85.40 a barrel

  • Gold futures rose 0.3% to $1,653.70 an ounce

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