Colombia’s Colcap Sees Second Day of Gains; US Markets Close Lower

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

👑 Colombia leads again in Latin America:

Most Latin American stock exchanges were not affected by the losses in the US markets on Wednesday, with the exception of Chile’s IPSA and the Mexican index, both of which closed lower.

Colombia’s Colcap (COLCAP) was the best performer for the second consecutive day, gaining 1.50% and driven by the good performance of the utilities, energy and materials sectors. Shares of Promigas (PROMIG), Canacol Energy (CNEC) and Grupo ISA (ISA) had the strongest showing.

Gustavo Petro’s tax reform, which will seek 22 trillion Colombian pesos per year in revenue, lower than the initially proposed goal of 25 trillion, will begin to be debated in Congress this Thursday amid objections from business associations that allege that it may affect business activity and future investment.

Argentina’s Merval index (MERVAL) also closed higher, climbing 1.24%.

📉 A bad day for Chile’s IPSA:

Chile’s IPSA index (IPSA) closed 1.08% lower, the sharpest drop in the region, with shares in the raw materials, non-basic consumer goods and the property sector falling.

Shares of CAP SA (CAP), Inversiones Aguas Metropolitanas (IAM) and Parque Arauco (PARAUCO) saw the sharpest declines during the day.

Mexico’s S&P/BMV IPC (MEXBOL) also closed lower, impacted by the communications services, raw materials and industrial sectors.

🗽 On Wall Street:

For many stock traders, it felt just about right that the market would take a breather on Wednesday after the dramatic rally of the past couple of days.

After a bounce that started around noon in New York and was attributed to a big options trade, the S&P 500 came back lower again. For a market plagued by fears about a recession and the Federal Reserve’s struggles to tame high inflation, the rebound from this year’s bottom has maybe gone too far, too fast.

The S&P 500 slipped 0.20%, the Dow Jones 0.14% and the Nasdaq Composite (CCMPDL) 0.25%.

Fundamentally speaking, nothing has changed that much to make the US central bank tilt toward a more moderate bias to prevent a hard landing. In fact, what Wall Street got on Wednesday was a renewal of the unflinching resolve from Fed officials to crush inflation.

Fed Bank of Atlanta President Raphael Bostic said he favors lifting rates to between 4% and 4.5% by the end of this year, and then keeping the tightening in place. He also echoed comments from his San Francisco counterpart Mary Daly, who downplayed speculation about rate cuts in 2023.

To Win Thin at Brown Brothers Harriman, the notion of any Fed pivot is just “wishful thinking” as Fed officials remain hawkish. He says another 75-basis-point hike next month is a “done deal.”

“Over the last few sessions, the market was too quick price in the ‘peak rate’ story in markets,” said Bipan Rai, head of North America currency strategy at CIBC. “Price pressures are set to remain sticky for some time and while the Fed might be closer to smaller incremental hikes than not, playing this via a ‘peak rate’ view is fairly dicey.”

Matt Maley at Miller Tabak, says the extreme positive breadth of the recent rebound in stocks is likely something that tells us the rally will take a “breather” for a day or two -- but it might not mean that the bounce is over.

“Yes, ‘bear-market rallies’ can see sharp advances that reverse almost immediately, so what we’ve seen over the last two days could be the ultimate head fake,” Maley added. “However, if the stock market can digest its gains of the last two days without a major reversal over the next few days, it’s likely that we’ll see a bit more upside follow-through to this week’s bounce before long.”

If history is any guide, “markets will need to experience more stress” before a pivot in monetary policy and an equity bottom, Wells Fargo & Co. strategists led by Christopher Harvey wrote. The Cboe Volatility Index is still trading below 40 -- a threshold that in the past signaled a shift to monetary easing.

US stocks just posted a rare streak of quarterly declines and are in a bear market, but Citigroup Inc. quantitative strategists say they’re only just starting to reflect the risks of a recession.

A team led by Hong Li said equities could come under further pressure as they continue to be “heavily driven” by heightened bond market volatility as well as concerns around persistent inflation and hawkish Fed.

There’s “more downside risk for the market and the earnings season,” they wrote.

Retail investors, who helped push stocks to all-time highs, are now trying a different tactic: Betting against the market.

From January to August this year, even before the most recent slump in stocks, the number of newly opened short positions on trading platform eToro was 61% higher than in 2021 and 41% higher than in 2020. Meanwhile, some of the biggest US exchange-traded funds that bet against popular indexes are raking in record amounts of cash.

Investors’ uncertainty toward the health of US companies is rising -- and their leaders haven’t done much to help. The lack of an accurate road map for the crucial earnings season is setting the stage for a slew of potential surprises when the reporting season kicks off in coming weeks.

Aside from those few providing cold, hard numbers, executives at the 1,000 largest US firms have spent the past three months voicing a similar message in their public remarks: They’re unsure about what’s ahead. They’ve mentioned “uncertainty” or its synonyms when describing the outlook 484 times during that time, the highest tally since the quarter ending March 2021, data compiled by Bloomberg show.

On the currency markets, the Bloomberg Dollar Spot Index rose 0.6%, the euro fell 1% to $0.9884, the British pound fell 1.3% to $1.1327 and the Japanese yen fell 0.3% to 144.56 per dollar.

🔑 They day’s key events:

Oil prices rose again on Wednesday for the third consecutive day after the Organization of Petroleum Exporting Countries (OPEC) and its allies agreed to cut production by two million barrels per day starting in November, the biggest cut since 2020.

Russia also warned that it is considering further reducing its own production temporarily in response to measures taken by the United States and other countries to limit the price of Russian oil, according to Deputy Prime Minister Alexander Novak, who also reiterated that Russia will not sell its crude to countries that limit prices.

The United States criticized OPEC’s decision.

Karine Jean-Pierre, White House press secretary, said that the cut aligns the group with Russia and noted that President Biden called it “unnecessary”. She also pointed out that the country could release more oil from its Strategic Reserve to alleviate energy prices.

West Texas Intermediate (WTI) for November delivery rose $1.24 to close at $88.09; while Brent for December settlement gained $1.57 to end the day at $93.72.

“Overall, this was supposed to be an event that reduced volatility and added support to the market. However, I think the end result may be more volatility and uncertainty in the market,” Rebecca Babin, senior energy trader at CIBC Private Wealth Management said of the supply adjustment.

🍝 For the dinner table debate:

Elon Musk has talked about “X, the app for everything” once he finalizes his purchase of Twitter Inc (TWTR). If some of his previous comments are anything to go by, this service could be very similar to the Chinese app WeChat.

Musk did not elaborate beyond a one-line tweet (“buying Twitter is an accelerator to create X, the app for everything”), but the Tesla Inc (TSLA) CEO has publicly complimented the Tencent Holdings Ltd. app, which has grown from a messaging service to a mini-internet used on a daily basis by more than one billion Chinese people.

Musk has talked about making Twitter more useful, hinting that he wants it to be more like ByteDance Ltd.’s WeChat and TikTok, immensely popular globally. And he has drawn parallels with other “super apps” used elsewhere in Asia, which allow users to do things ranging from communicating with someone, booking travel, ordering food, paying for goods or services and reading news.

-- Leidys Becerra, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News, contributed to this report.