A roundup of Monday’s stock market results from across the region
👑 Argentina, Chile close with gains in Latin America:
The Argentine and Chilean markets were the only ones to close with gains in Latin America on Monday.
Argentina’s Merval (MERVAL) closed 0.95% higher with shares of Ternium Argentina (TXAR), Bbva Argentina (BBAR) and Banco Macro (BMA) seeing the strongest gains.
“Although there is still high uncertainty regarding the level of accumulated reserves in relation to the energy expenses to be faced and the obligations to be fulfilled with the IMF for next month, the Central Bank today managed to acquire $140 million in the market, and there are expectations for a greater liquidation of dollars provided by agricultural exports”, Fernando Staropoli, an analyst at Rava Bursátil, said.
Chile’s IPSA (IPSA) climbed 0.90%, buoyed by the materials, energy and consumer discretional sectors. Shares of SQM/B (SQM/B), Cencosud (CENCOSHO) and Enel Chile (ENELCHIL) put in the best performance.
Mining was the sector with the strongest chains on the Chilean exchange, with a rebound following Friday’s losses on the back of quarterly results that failed to meet market expectations.
📉 A bad day for Brazil, Mexico and Peru:
Losses on US markets amid greater risk aversion had a knock-on effect in the rest of Latin America, with Peru seeing the sharpest losses, with the S&P/BVL Perú (SPBLPGPT) falling 1.33%.
Brazil’s Ibovespa (IBOV) and Mexico’s S&P/BMV IPC (MEXBOL) had a similar day.
“The most relevant aspect of the day is the expectation that the markets have on the annual Jackson Hole symposium organized by the Kansas Fed, which will begin this Thursday, with particular interest in Jerome Powell’s speech scheduled for Friday,” said analysts at BX+ in a note.
🗽 On Wall Street:
A sobering tone took over Wall Street after a rally that added $7 trillion to the stock market, with traders bracing for hawkish rhetoric from Federal Reserve officials at the Jackson Hole retreat later this week.
Equities saw their worst rout in two months, following a surge that drove the S&P 500 to its best start to a third quarter since 1932. The Nasdaq 100 underperformed as Treasury 10-year yields topped 3%. The meme-stock frenzy continued to unravel, with other speculative corners of the market like Bitcoin and profitless tech firms also getting clobbered. The Cboe Volatility Index, or VIX, soared. As the dollar gained, the euro sank to an almost two-decade low.
The S&P 500 plunged 2.14%, the Dow Jones Industrial Average dropped 1.91% and the Nasdaq Composite (CCMPDL) slid 2.55%, the sharpest drop for the S&P 500 and the Dow Jones Industrial Average since June 16.
The furious runup in US shares from June lows showed signs of fatigue as the earnings season wrapped up, with the threat of an economic recession still looming large amid warnings from Fed officials that the fight against inflation is far from over. That stance will likely be reinforced by Jerome Powell Friday at the prestigious event in Wyoming’s Grand Teton mountains, which has been used by Fed chairs as a venue for making key policy announcements.
JP Morgan (JPM) analysts said it’s probable that the Federal Reserve will make its last big rate rise at September’s meeting.
“He may try to send a clear message that even if they have a slower pace of rate hikes, that won’t signal a lower peak rate or that they will be quick to cut rates,” wrote Ed Moya, senior market analyst at Oanda. “After this week, Wall Street should not be surprised if Fed fund futures start pricing in rate hikes for next year. This could be the week many return from vacation and double-down on their bear-market rally calls.”
In fact, while the recent surge in stocks has triggered chatter about a new bull run, history shows there may be more turbulence ahead. Looking back to the last six bear markets since the 1970s, four of them have experienced an average of six or seven short-lived up trends, according to Glenmede. The study also showed that the 17% surge from June lows was consistent with historical bear-market rallies.
“There may be further downside to the ongoing bear market, justifying an underweight to risk assets,” wrote Jason Pride, the firm’s chief investment officer of private wealth.
Investors are also waking up to the imminent acceleration of the Fed’s balance-sheet reduction. So-called quantitative tightening kicks into top gear next month, and will add to pressure on riskier assets which have benefited from ample liquidity. Strategists at Bank of America Corp. last week said that the winding down of the central bank’s balance sheet poses a risk to equity prices.
Meantime, hedge funds are rapidly positioning for higher rates in a key corner of the derivatives market. The group has collectively placed a big short across futures referencing the official successor to London interbank offered rate known as the Secured Overnight Financing Rate. This wager stands to benefit should Powell effectively rule out a dovish pivot this week.
The debate for most investors has shifted from a focus on the odds of a recession to how the Fed will impact markets, according to Lindsey Bell, chief money and markets strategist at Ally, who bets volatility will likely increase as investors look for catalysts.
“With real rates still rising and prospects for 2023 rate cuts fading in the bond market, stock valuations look extremely stretched, especially if as we suspect, policy-driven economic slowing will prove an obstacle to currently optimistic 2023 earnings estimates,” Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, said in a note. “Stocks are overbought. Sit it out for now.”
Stocks and bonds are set to tumble once more even though inflation has likely peaked, according to the latest MLIV Pulse survey, as rate hikes reawaken the great 2022 selloff. Ahead of the Jackson Hole symposium, 68% of respondents see the most destabilizing era of price pressures in decades eroding corporate margins and sending equities lower.
As investors wonder whether the selloff will get worse from here, Lori Calvasina at RBC Capital Markets says “it seems premature to call an end to the rebound just yet” even with stocks set up for “some choppiness” in the second half of 2022.
“Deeply depressed levels of investor sentiment, which continue to show signs of healing, have kept us out of the bearish camp,” she added.
Elsewhere, gold dropped for a sixth day as a stronger dollar and higher bond yields are bad for bullion as it pays no interest and is priced in the US currency. Oil clung to $90 at the conclusion of a volatile session after Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said “extreme” volatility and lack of liquidity mean the futures market is increasingly disconnected from fundamentals and OPEC+ may be forced to cut production.
On the currency markets, the Bloomberg Dollar Spot Index rose 0.6%, the euro fell 0.9% to $0.9943, the British pound fell 0.5% to $1.1766, and the Japanese yen fell 0.4% to 137.45 per dollar.
🔑 The day’s key events:
Gold prices accumulated six days of losses as investors seek refuge in the dollar awaiting more clues on the Federal Reserve’s next moves.
The metal fell as low as $1,727.84 an ounce during the day, the lowest intraday level since July 27, although it later pared losses. A stronger dollar and higher Treasury yields are bad for the bullion, as it does not pay interest and its price is quoted in the U.S. currency, making it less attractive, Bloomberg explained.
On the other hand, the price of oil reduced the falls with which it has been trading since last week, amid fears of a recession, following news of the possibility of OPEC and its allies intervening in the market.
Saudi Arabia’s oil minister, Prince Abdulaziz bin Salman, said in an interview with Bloomberg that “extreme” volatility and illiquidity mean the futures market is increasingly disconnected from fundamentals and that the group of countries could be forced to act.
“Witnessing this recent damaging volatility disrupts basic market functions and undermines the stability of oil markets,” he said.
🍝 For the dinner table debate:
CEOs don’t like to say what their salary is, according to a LinkedIn survey of 19,000 professionals who answered questions between June and July. The results showed that company executives have no interest whatsoever in sharing their salary details with either colleagues or their closest friends.
While most workers in lower positions would tell their families about their salary and 31% would tell close friends, nearly a quarter of company vice presidents, senior executives and business owners say they wouldn’t tell anyone, Bloomberg reported.
“When it comes to senior executives, the desire to keep things secret remains surprisingly strong,” said George Anders, senior editor at LinkedIn, in an online post.
Overall, 34% of managers agree that greater pay transparency would lead to greater equality in the workplace, compared with about half of non-manager respondents who think so.
-- Carlos Rodríguez Salcedo, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.