Market Snapshot: Stock investors face a wall of worry into the year-end, creating the need for protection

by | Sep 24, 2023 | Stock Market

Investors face a growing list of risks heading into the fourth quarter that just keeps getting bigger — from rising interest rates to a possible revival of inflation and gridlock in Washington that may become headwinds for economic growth.The Federal Reserve remains in rate-hiking mode and is unlikely to cut borrowing costs next year by as much as previously thought. The prospect of $100-a-barrel oil at a time of expanded strikes by the United Auto Workers union is reigniting inflation concerns. Meanwhile, mitigating factors that could slow economic growth — such as the possibility of a government shutdown and the resumption of student-loan payments — might not be enough to shake the Fed’s inflation-fighting resolve.Read: Risk of government shutdown soars as House Republicans leave town in disarray amid hard-right revolt and Student-loan payments are about to resume. Defaults are expected to follow.See also:Fed’s Collins doesn’t rule out more interest-rate hikesIt all adds up to an ever-growing wall of worry for many investors and traders, who had expected inflation to fade and the Fed to be done with raising interest rates. With the central bank’s main interest-rate target already at a 22-year high and likely to go higher by December, Treasury yields have reached levels not seen in at least a dozen years, putting a cap on how much further equity markets can climb and creating the need for investors to search for protection. A day after the Fed’s policy update on Wednesday, which underscored a message of higher-for-longer rates, strategists Jay Barry, Jason Hunter and others at JPMorgan Chase & Co.
the biggest U.S. bank, said their bearish equity view was “gaining material traction” and that September through mid-October “also happens to be the most bearish time of the year for risky markets from a cyclical perspective.” Comparing the current period to 1987, the year of the “Black Monday” crash, they said they expect the U.S. stock market’s slide to accelerate into the fourth quarter, but stopped short of calling for a “crash.” The rise in market-implied rates that followed the Fed’s announcement has created an environment of “more losers than winners” — in the words of portfolio manager Christian Hoffmann at Thornburg Investment Management — with equity prices and bond prices both falling on Thursday. On Friday, all three major U.S. stock indexes


ended lower for the fourth straight day, producing weekly losses which shrank each of their year-to-date gains. Meanwhile, Treasury yields finished not far from their highest levels since 2006-2011 as fed funds futu …

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