U.S. stocks plummeted this past Friday, 23 September 2022, in what looked like a risk-off selling. Treasury yields soared to levels not seen in more than a decade following the Fed’s moves, with the two-year yield jumping as high as 4.26% and the 10-year yield at 3.82% respectively.
Goldman Sachs Group Inc. slashed its year-end target for the S&P 500 Index to 3,600 from 4,300, arguing that a dramatic shift in the outlook for interest rates moving higher will weigh on valuations for US equities.
It is now forecasted that the FOMC will raise its rates by 75 basis points in November, 50 basis points in December, and 25 basis points in February for a peak fund rate of 4.55-4.75%.
The Dow Jones average plunged by 486 points on Friday to finish at 29,590 but bounced off-peak losses of more than 800 points, while the S&P 500 fell 1.7% to end at 3,693, after both benchmarks dipped below their year-to-date closing lows set on June 16.
All three major stock market averages posted their fifth negative week in the last six months, with the Dow falling 4%, the S&P down 4.6%, and the Nasdaq crashing more than 5% respectively.
Here are the closing levels on Friday, 23rd September 2022:
The only silver lining from Friday’s session was the bounce at the close. While we can take some positives from the fact that the June 13 low held on as support, it is highly probable that this was due to some short cover to make some profit off the price floor.
The Goldman S&P target of 3,600 points for the year-end is not as significant as the forecasted future rate hikes. After all, it is currently at 3,600 points already.
The fund’s peak is more significant alongside the fact that yields have surged higher with potential for more upside; asset prices will have to be adjusted downwards.
The sentiment is negative, the charts look bearish, and new lows are likely in-store for the year.
The problem is that the capitulation that usually follows a price floor or base market is not seen yet. Unfortunately, the market is unpredictable still as it may capitulate or simply melt down week after the week.
The upcoming earning season may give us more clues on the trajectory of the future as well as upcoming inflation and employment data. Right now, the direction that one may expect from these upcoming data is probably lower.
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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