Chile’s IPSA Suffers Sharpest Slump of the Year; US Markets Close Lower

Chile’s index fell more than 3% after two days’ holiday, while in the US, analysts anticipate a 75-base-point hike by the Federal Reserve, according to a Bloomberg survey

A trader on the floor of the New York Stock Exchange. Photographer: Michael Nagle/Bloomberg
By Bloomberg Línea and Bloomberg News
September 20, 2022 | 07:21 PM
Reading time: 6 min.

A roundup of Tuesday’s stock market results from across the region

🥇 Brazil leads in Latin America:

Latin America’s markets closed mixed on Tuesday amid the wait-and-see regarding the Federal Reserves decision on whether to raise interest rates.

Brazil’s Ibovespa (IBOV) closed higher, with Bradesco (BBDC4), Santander (SANB11) and Itaú Unibanco (ITUB4) shares climbing as investors await a decision on monetary policy from the country’s central bank.

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Mexico’s S&P/BMV IPC (MEXBOL) also gained on Tuesday, with shares of América Móvil (AMXL), Walmex (WALMEX*) and Arca Continental (AC*) closing higher. América Móvil’s shares rose by more than 5% during the day ahead of the company’s owner Carlos Slim’s company Sitios Latam making its Mexican stock exchange debut on September 29.

📉 A bad day for Chile’s IPSA:

Chile’s IPSA (IPSA) slipped more than 3%, its sharpest decline since December 2021, dragged down by the real estate, industrial and tech sectors, with no companies in any sector closing with gains.

Shares of Parque Arauco (PARAUCO), Cencosud (CENCOSHO) and Quinenco (QUINENC) closed with the sharpest losses.

The selloff obeys the generalized risk aversion ahead of the Federal Reserve’s Wednesday meeting,

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“The stock markets have been subjected, in just a few days, to the double impact of inflation, which, defying all expectations, has not yet subsided, and of declining growth, which everything points to a recession, the only doubt being the intensity of that recession,” wrote Juan Carlos Ureta, executive chairman of Renta4, in an analysis.

🗽 On Wall Street:

Stocks came under pressure as Treasury yields hit multiyear highs, with traders bracing for a hawkish Federal Reserve that’s expected to boost rates to levels not seen since before the 2008 financial crisis.

A slide in equities pushed the S&P 500 more than 10% below its Aug. 16 high -- which marked the peak of rally from the June bottom. About 93% of its companies were down Tuesday, with all major groups in the red. Ford Motor Co. tumbled the most in 11 years after warning on inflation costs. Two-year US yields approached 4% while a dollar gauge rose to a record.

The S&P 500 slipped 1.13%, the Dow Jones Industrial Average 1.01% and the Nasdaq Composite (CCMPDL) 0.95%.

Fed officials are about to put numbers on the “pain” they’ve been warning of when they publish new economic projections Wednesday. They could show a substantial rise in rates and unemployment ahead as the estimated price tag for reducing inflation. Officials are expected to hike by 75 basis points again -- and a few market observers say a full-point move might also be on the table.

To Charlie McElligott, cross-asset strategist at Nomura Securities International, the market is underpricing the possibility that the Fed could opt for a bigger move of 100 basis points. In addition to last week’s inflation surprise, he cited the fact that both the labor market and wages remained “hot” since Fed Chair Jerome Powell’s Jackson Hole speech at the end of August.

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Only two of the 96 analysts surveyed by Bloomberg are currently predicting a full-point increase this month.

“The idea that the Fed will raise rates and immediately cut again in mid-2023 should now be put back into storage alongside the beach chairs,” said Gargi Chaudhuri, head of iShares investment strategy for the Americas at BlackRock Inc. “Recent data have confirmed the necessity of the Fed’s tough stance. We believe we are entering a new regime of structurally higher volatility and slowing growth.”

Nouriel Roubini, who correctly predicted the financial crisis, sees a “long and ugly” recession occurring at the end of 2022 that could last all of 2023 and a sharp correction in the S&P 500. “Even in a plain vanilla recession, the S&P 500 can fall by 30%,” said the chairman of Roubini Macro Associates. In “a real hard landing,” which he expects, it could fall 40%.

For traders grappling with a hawkish Fed and a looming recession, the next shoe to drop will be on corporate earnings, said a BlackRock co-chief investment officer.

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“What we’re concerned about increasingly is earnings downgrades and we haven’t had that yet,” said Nigel Bolton of BlackRock Fundamental Equities, which comprises active stock strategies. “The tone of management teams is already starting to change and we’re going to see pretty substantial reductions for 2023,” he said.

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Professional speculators are refusing to surrender to a punishing equity market prone to volatility -- boosting bullish and bearish positions at the fastest rate in five years. As the S&P 500 plunged last week, hedge funds snapped up single stocks while betting against the broad market with products like exchange-traded funds, data from Goldman Sachs Group Inc.’s prime brokerage show.

The appetite for protection against an index-wide drop in the S&P 500 in the next three months has been falling together with the stock market, pushing the put-to-call ratio to a fresh one-year low, data compiled by Credit Suisse Group AG’s derivatives strategists show.

The opposite has been happening on a single-stock level: A similar ratio jumped to a one-year high as company-specific announcements have been triggering outsized stock reactions.

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Investors also kept an eye on geopolitical developments Tuesday amid news the Kremlin was moving hastily to stage sham votes on annexing the regions of Ukraine its forces still control.

On the currency markets, the Bloomberg Dollar Spot Index rose 0.4%, the euro fell 0.5% to $0.9978, the British pound fell 0.4% to $1.1386 and the Japanese yen fell 0.3% to 143.66 per dollar.

🔑 Key events of the day:

Oil prices fell amid uncertainty surrounding the Federal Reserve’s decision later this week, as aggressive monetary policy could slow the world’s largest economy and impact global demand for crude oil.

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Along with the Fed’s announcement on Wednesday, investors will also have to weigh a series of central bank decisions from Latin America through Europe and into Asia.

“Commodities are weaker across the board as this week is all about aggressive monetary policy tightening to combat inflation,” said Edward Moya, an analyst at Oanda.

Beyond the oil market, investors were also on the lookout for news that the Kremlin intends to annex regions of Ukraine that its forces still control, Bloomberg reported.

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Russian stocks on Tuesday posted their biggest drop since the start of the invasion of Ukraine and the Moscow stock exchange’s MOEX index plunged 11%, its biggest decline since February 24.

🍝 For the dinner table debate:

Argentina would win the Qatar 2022 FIFA World Cup, according to a results model developed by Liberum Capital Ltd. strategist Joachim Klement.

The team led by Lionel Messi would beat England in the final after defeating Spain in the semifinals, according to Klement’s modeling of the tournament’s end result.

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Klement said his model has correctly predicted the champions of the last two World Cups, in 2014 and 2018: Germany and France, respectively, Bloomberg reported.

“I’ve been working in the financial services industry for more than 20 years and, if there’s one thing I’ve perfected, it’s how to find excuses for wrong predictions,” he said in the note cited by Bloomberg. “If I’m right, it’s skill and, if I’m wrong, it’s someone else’s fault.”

The model takes into account current team strength and other socioeconomic variables, such as GDP per capita, population size and country temperature, which previous research has shown affect team performance.

-- Carlos Rodríguez Salcedo, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.

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