Despite yesterday's buoyant recovery of the US stock market, it is still quite volatile today. Futures on major US stock indices have declined sharply on Wednesday. Bear in mind that usually, October is one of the most turbulent months. Investors feel ill at ease due to high inflation and associated risks, as well as rising US Treasuries. Policymakers still do not reach a consensus on the US debt limit. Now, this topic is slightly forgotten. However, by the end of the week, there will be more talks about it. Futures on the Dow Jones fell by 330, or 0.9%. Futures on the S&P 500 dropped by 1.1% and on the Nasdaq Composite by 1.2%.
Such volatility is highly likely to persist until mid-October, and then it may subdue.
Analysts are raising concerns amid the recent increase in energy prices and the rise in the government bond yields as it may trigger higher costs for suppliers and companies. In turn, it will lead to higher spending among consumers and even inflation growth. Yesterday, during an interview, St. Louis Federal Reserve Bank President James Bullard expressed his opinion on the issue. "I am concerned about the changing mentality, I would say, around prices in the economy and the relative freedom that businesses feel that they can just pass on increased costs easily to their customers. For years, that's not been the case," Bullard said. He also added that for many years, such a move was not allowed. According to Bullard, manufacturers used to acknowledge that if they raised prices, they would lose market share and it would hurt their business. Consumers were also looking for places with cheaper goods and services, which created fair and healthy competition. Now, things are rather different and this principle does not work anymore.
The 10-year government bond yields rose again on Wednesday and exceeded 1.55%, following an increase above 1.56% last week. This growth is associated with growing oil prices, which have already reached the highest level since 2014. WTI crude has almost surpassed $80 per barrel. Now, investors are also bracing for the publication of the ADP report. This data is sure to be in the limelight as it gives hints about the possible results of the NonFarm Payrolls report. NFP data is due on Friday. If these reports turn out to be upbeat, the Fed is likely to start tapering bond purchases earlier than expected to cap high inflation.
Many investors are closely following the discussion of the debt ceiling in Washington. The final decision should be made by the end of this week. Recently, Treasury Secretary Janet Yellen announced that the US would fall into recession if Congress did not raise the debt ceiling by the October 18 deadline.
Now let's look at the premarket stock trading.
American Airlines and JetBlue incurred the biggest losses. The shares of the companies fell by 3% each after the downgrade of Goldman Sachs. Goldman cited higher fuel prices and slowing short-term demand due to coronavirus problems. At the same time, the shares of Boeing, General Electric, and Ford also sank significantly. As for the technology sector, a decrease of about 1% was also seen in Amazon, Apple, and Google shares.
In the consumer sector, Constellation Brands, a beer and wine producer, reported adjusted quarterly earnings of $2.38 per share, which is below the consensus forecast of $2.77. Nevertheless, the net profit exceeded Wall Street forecasts. So, Constellation raised its annual profit forecast. Its shares lost 2.2% in the premarket.
Shares of Palantir Technologies rose by 8.1% in the premarket after the news that the company landed a landmark contract with the US Army worth north of $800 million. The contract would require Palantir to create an intelligence system to aid soldiers in remote environments.
Shares of Seagate Technology dropped by 3.3% in premarket trading after Morgan Stanley downgraded its rating from "overweight" to "equal weight", citing deteriorating industry data, including inventory levels Rise and decline in corporate spending plans.
Mark Zuckerberg responded to Frances Haugen's accusations in Congress, saying that the company does not put profit above security. Zuckerberg published a blog post that resolved the allegations. The stock price shed 1.3% in the market.
HSBC's rating on UBS has been upgraded from "Neutral" to "Buy" amid more optimistic expectations about the bank's financial performance in 2022. UBS securities gained 2.3%.
As for technical indicators, they are showing a strong support level of 4,288. This level is crucial for future movements in the market. If yesterday's problems in the tech sector are resolved quickly today and the Senate manages to agree on the US debt limit, the S&P500 is likely to reach 4,394. It may even approach a high of 4,478. If not, the breakout of the 4,288 level will trigger a decrease to 4,231 and 4,155. The fall is likely to be rather sharp. So, stay alert and closely monitor the situation in the stock market.
