U.S. stock closed lower on Friday, 30^th September 2022 closing the quarter on a sour note. 

PCE data on Friday rosed more than forecast. The personal consumption expenditures price index, which the Federal Reserve uses for its inflation target, rose 0.3% from a month earlier, topping estimates.  

From a year ago, the gauge was up 6.2%, also higher than forecast and well above the central bank’s 2% goal. Excluding food and energy, the price index rose 0.6% in the month and was up 4.9% from August 2021. 

These numbers, sealed the deal after yields started to head higher the day before. Yields took a tumble on Wednesday after the Bank of England intervened in its bond market to prevent a meltdown. They were concerned margin calls would cause a gilt crash.  

U.S. yields fell in response to the fall in UK yields but soon reversed as the market refocused on the Feds’ plans to raise rates further following hawkish comments from various Fed officials. 

Down for a sixth time in seven weeks, the S&P 500 sank to fresh bear-market lows. Notching a 25% decline in nine months, the benchmark index has now suffered its third-worst performance at this point of a year since 1931.  

Here are the closing levels on Friday, 30^th September 2022:

	Last	Change	%Change
Dow Jones	28,725.51	-500.10.	-1.71%
S&P 500	3,585.62.	-54.85.	-1.51%
Nasdaq Comp	10,575.62.	-161.89.	-1.51%
US 10Y	3.83%
VIX	31.62	-0.22	-0.69%

In my 12^th September 2022 commentary, I exclaimed “the bulls just don’t get the picture”. It has been a painful lesson since then. That was when the S&P was at 4067. We are ~12% lower since then. If the bulls thought buying at 4067 was good, they will think that buying at 3585 is even better.  

Bearish sentiment, oversold markets, and smaller positions are what happens before a bounce. 

While it is tempting to buy at this point, the downtrend is hard to ignore.  

Like the gilts, U.S. assets under margin may come under attack as investors fail to make those margin calls in the face of more selling. This may create a snowball effect and cause prices spiralling down further. 

Looking at the charts and the commitment from the Federal Reserve to tame inflation it is hard to call a bottom right now. 

So, if you are looking for bargains it’s best to be hedged in case of more downside, stay flexible, and do not over extend would be the advice from most analysts.  

If you can’t make the margin calls, it does not matter if you have the right position in the long term, you will be forced out of that position. 

I would like to take this opportunity to wish all my mainland China friends a good Golden week holiday! 

Source: CBOE, Bloomberg

This commentary is written by James Gomes 
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years. 

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