Investors feeling giddy about last week’s sharp rally for stocks might want to give a listen to Tom Waits’ song, “Whistlin’ Past the Graveyard” from 1978, to sober up for the dangers that still lurk ahead. The surge in stocks catapulted the S&P 500 index
almost back to the 4,000 mark on Friday, also lifting it to the biggest weekly gain in roughly five months, according to Dow Jones Market Data.
Investors showed courage on signs of a slight slowing of inflation, but the fortitude also comes as a drearier backdrop for investors has been unfolding in plain sight. Massive layoffs at big technology companies, the dramatic implosion of crypto-exchange FTX, and the day-to-day pain of high inflation and skyrocketing borrowing on businesses and households are all taking a toll. “We are not convinced this is the beginning of a new bull market,” said Sam Stovall, chief investment strategist at CRFA Research. “We believe that we are headed for recession. That has not been factored into earnings estimates and, therefore, share prices.” Stovall also said the stock market has yet to see the “traditional shakeout of confidence capitulation that we typically see that marks the end of the bear markets.” From Meta Platforms Inc.
to Lyft Inc.
to Netflix Inc.
there is a wave of major technology companies resorting to layoffs this fall, a threat that could sweep other sectors of the economy if a recession materializes and drag shares of large companies in the tech-heavy Nasdaq Composite Index
lower. Yet, information technology stocks in the S&P 500 jumped 10% for the week, while financials, which stand to benefit from higher interest rates, rose 5.7%, according to FactSet. That could reflect optimism about the odds of a slower pace of interest rate increases by the Federal Reserve in the months ahead, after sharp rate rises helped to undermine valuations and pull tech stocks dramatically lower in the past year. However, since the October inflation reading on Thursday, Loretta Mester, president of the Cleveland Fed, and other Fed officials have reiterated the need to keep rates high, until 7.7% annual rate finds a clearer path to the central bank’s 2% target. The stock-market rally also might suggest that investors view continued mayhem in crypto as contained, despite bitcoin
trading near its lowest level in two years and the shocking collapse in recent days of FTX, once the world’s third-largest …