A roundup of Tuesday’s stock market results from across the Americas
📉 A bad day for Latin America’s markets:
Latin America’s stock markets closed lower on Tuesday, with Chile’s IPSA (IPSA) leading the losses, falling 1.30%.
Shares of Cencosud S.A. (CENCOSUD), Plaza S.A. y Filiales (MALLPLAZ) saw the sharpest losses, falling 5.35% and 3.77% during the day, with the real estate and raw materials sectors also seeing losses.
In an interview with Bloomberg Línea, Chilean Interior Minister Esteban Valenzuela said that the labor deficit in the country cannot yet be considered overcome, at least in the agriculture sector, compared to the figures recorded before the pandemic.
President Gabriel Boric’s government official is looking for solutions to this situation: “We are committed. The president that as a task for this 2023: to have on the table a proposal of the agricultural worker”.
Mexico’s S&P/BMV IPC (MEXBOL) fell 1.24% on the day, driven down by shares in the industrial and communication services sectors.
Mexico’s state-owned oil company Pemex is negotiating separate deals with Goldman Sachs Group Inc. and JPMorgan Chase & Co. for financing of at least $1 billion, as the indebted oil company struggles to raise cash amid falling production, people with knowledge of the matter said.
The Argentine and Brazilian markets remained closed for the carnival holidays.
🗽On Wall Street:
Wall Street’s growing fears that the Federal Reserve is nowhere near wrapping up its war against inflation — let alone pivoting — continued to burn bond investors who at one point were betting on rate cuts in 2023. As traders ramped up their Fed wagers, two-year US yields hit the highest since 2007. And the last ones to join the so called “everything rally” — equities — are now giving signs of running out of steam.
In a selloff that engulfed every major group in the S&P 500, the gauge slid 2% — its worst selloff since mid-December — wiping out its monthly advance. Over 90% of its shares fell. The Dow Jones Industrial Average erased its 2023 gains. Tech stocks underperformed, with the Nasdaq 100 (CCMPDL) down almost 2.5%. Equity volatility, which had been stubbornly low earlier this year, continued to surge, with the so-called VIX near 23.The Dow Jones Industrial Average slid 2.06%.
While recent economic data suggest the US might be able to dodge a recession, a hawkish Fed and elevated earnings projections make the risk-reward for equities look “very poor,” said Morgan Stanley’s Michael Wilson. That doesn’t bode well for the market after a sharp rally that has left stocks at their most expensive levels since 2007 by the measure of equity risk premium.
“It is at a point where equity markets feel like they’re a bit overpriced given where we are,” Liz Young, head of investment strategy at SoFi, told Bloomberg Television. “The Fed still has to do more, and we all know about the long and variable lags that it takes for monetary policy changes to move their way through the economy. It’s difficult for me to look at this in this environment and say, ‘yes, we should be paying 18-times forward earnings.’”
Others on Wall Street have also warned that the recovery in stocks may have gone too far.
JPMorgan Chase & Co.’s Mislav Matejka said bets on resilient economic growth and a Fed pivot are premature, while Bank of America Corp. strategist Michael Hartnett sees the S&P 500 dropping to 3,800 points by March 8 — implying declines of about 5% from current levels. Wilson is far more pessimistic and holds a view the index can slide to as low as 3,000 — a 25% plunge from Tuesday’s close — in the first half of 2023.
Eric Johnston at Cantor Fitzgerald said he remains bearish on equities — and his conviction remains high. Johnston added he couldn’t disagree more more with the view that the US will see no recession and may instead have a soft landing or no landing. The current performance of the economy is not an indication of what it will look like six to 12 months from now, he noted.
There’s also the fact that solid economic data continue to spell trouble as far as Fed policy goes.
Indeed, equities came under pressure Tuesday even after data showed US business activity steadied in February as the service sector regained its footing, suggesting a strong economy that is keeping some pricing power intact.
“A tight labor market and resilient consumer demand could goad the Federal Reserve to maintain its rate hiking campaign into the summertime,” said Jeffrey Roach, chief economist at LPL Financial. “Investors should expect volatility until markets and central bankers come to agreement on the expected path for interest rates.”
Vulnerable to ‘shocks’
Investors are pricing in federal funds rate climbing to around 5.3% in June. That compares with a perceived peak of 4.9% just three weeks ago.
“If rates are closer to 5% for longer, valuations incorporating extremely modest risk premiums will likely be very vulnerable to market shocks,” said Lisa Shalett, chief investment officer at at Morgan Stanley Wealth Management. “Investors should note that a ‘higher-for-longer’ Fed will likely not only reset the terminal rate, but also the longer-term neutral rate — generating headwinds for long-duration valuations.”
Markets are still trying to adjust to the reality that the Fed is unlikely to pivot and is instead still focused on fighting inflation, which suggests that investors should be prepared for interest rates to stay higher for longer, said Carol Schleif, chief investment officer at BMO Family Office. That means, “we could see continued volatility through year-end.”
Schleif also notes that Wednesday’s Fed minutes will be particularly relevant given the recently released inflation and jobs numbers, which are still elevated and illustrative of a hot economy. The Fed’s preferred inflation gauge later this week — along with a groundswell of consumer spending — are seen fomenting debate among central bankers on the need to adjust the pace of rate increases.
If history is any guide, the stock market hasn’t hit bottom yet.
The S&P 500 hit a low only after the Fed stopped raising rates in previous hiking cycles, according to data compiled by Bloomberg, implying more downside if the trend holds true. US equities rallied 17% from an October low to a high in early February, before gains began to fade.
The latest JPMorgan Chase & Co. client survey shows that equity positioning is still skewed toward the bearish percentile and only 33% of respondents said they are likely to increase exposure in the coming weeks.
As the US earnings season winds down, traders will be interested in hearing from one of this year’s top performers in the S&P 500: Nvidia Corp.
The company is set to report fourth-quarter results Wednesday at a tumultuous time for the chipmaker. Though the personal-computer industry continues to struggle, the firm’s prospects in data centers and artificial intelligence have bolstered the shares in 2023. In the run-up to its report, the shares extended a four-day rout to 10%.
“The question now is whether NVDA’s earnings report tomorrow can help the stock regain its upside momentum,” said Matt Maley, chief market strategist at Miller Tabak + Co. “If it can, it will not just be positive for the stock, but it will be positive for the chip sector overall. Since the semiconductors are such an important leadership group in the stock market, a positive report could/should be important on a broader basis as well.”
The Bloomberg Dollar Spot Index rose 0.3%, the euro fell 0.4% to $1.0647, the British pound rose 0.5% to $1.2106 and the Japanese yen fell 0.5% to 134.93 per dollar.
🍝 For the dinner table debate:
McKinsey & Co. plans to eliminate about 2,000 jobs, one of the consulting giant’s biggest rounds of job cuts.
The firm, known for devising downsizing plans for its clients, will lay off some of its own, with the move expected to focus on support staff in roles that do not have direct client contact, according to people familiar with the matter.
Under a plan dubbed Project Magnolia, the management team hopes the move will help preserve the compensation pool for its partners, said the people, who asked not to be identified as they were dealing with nonpublic information. The firm, which has experienced rapid headcount growth over the past decade, intends to restructure the organization of its support teams to centralize some of the functions.
The plan is expected to be finalized in the coming weeks, and the final number of functions to be eliminated from its 45,000-strong workforce could vary, according to one of the people consulted. The number of employees is up from 28,000 five years ago and 17,000 in 2012.
Sebastián Osorio Idárraga, a content producer at Bloomberg Línea, and Rita Nazareth of Bloomberg News contributed to this report.