Market sentiment continues to weaken
As of last night’s close, we have had a near 5% correction in the S&P 500 and an over 6% correction in the Nasdaq, both now below their 50-day moving averages. A combination of factors is denting investor confidence. One being renewed concerns about private credit as federal investigators announced on Monday that they were probing fraud allegations involving private credit borrowers following a lawsuit from lenders, including BlackRock subsidiary HPS Investment Partners. According to the latest Merrill Lynch fund manager survey, private credit is now their No. 1 concern. Bitcoin, down over 25% from its highs and now almost flat on the year, is encouraging more bears from the woods.
Another being an increased concern for the consumer, as Home Depot missed numbers yesterday, blaming the weather or lack of apparently. Nothing like a good storm to boost Home Depot’s profits, according to the CEO’s post-earnings comments to boost earnings. Management also provided a cautious outlook, indicating that the company faces external pressures from a soft housing market. CNN’s Greed and Fear Index has truly entered fear territory.
Later today, Nvidia reports earnings; in recent times, its results have led to a spell of profit-taking, regardless of the strength of the report. As of yesterday’s close, Nvidia’s share price is down about 15% from its recent peak. Semiconductor stocks continue to take the brunt of the selloff, along with other AI-related companies. It will be interesting to see how the market responds to its numbers tonight.
To my mind, the primary concern for investors is that, now that the government has reopened and the backlog of economic data is starting to be released, and what will it reveal about the current state of the US economy, particularly employment? It’s pretty much stating the obvious, but if the data lead to increased concerns that the US economy is slowing, the bears will take a firmer grip on the narrative. The weekly ADP new pulse indicator revealed that private employment was down 2,500 on average for the four weeks ending Nov. 1st. Personally, the rest is probably noise; these worries will be at the forefront of investor concerns. As we get the minutes of the last Fed meeting tonight, it’s worth noting that 2-year Treasury yields have risen over the past week, suggesting that this renewed bout of volatility has not led to increased speculation that the Fed will be more willing to cut in December.
Turning to the UK, the latest inflation report offered Ms Reeves some relief, as the annual rate of inflation fell as expected to 3.6% from 3.8% last month. It would appear that the 4% of a couple of months ago was the peak. Producer Prices and the Retail Price Index all came in ahead of expectations. This may help the Bank of England at its next rate-setting meeting, odds may increase on a December cut.