Wall Street indexes rose on Tuesday, recovering a measure of the hefty losses seen over the past week amid concerns over a U.S. recession and a tech slowdown.
The S&P 500 and the NASDAQ Compositeboth rose 1%, climbing from three-month lows, while the Dow Jones Industrial Averagerose 0.8%.
These futures were boosted by comments from a senior Bank of Japan official downplaying the bank’s plans to raise interest rates while markets remain volatile.
Market stress elevated
That said, sentiment towards risk-driven assets remained frail amid persistent concerns over slowing growth and middling earnings.
Goldman Sachs noted that its Financial Stress Index (FSI) has tightened significantly over the past two days but remains within normal historical levels.
“Most of the tightening has been driven by higher expected volatility in the equity and bond markets, while conditions in short-term funding markets have remained broadly stable,” Goldman economists wrote in the note.
“So while market stress is noticeably higher than a week ago, our FSI suggests that there have been no serious market disruptions to date that would force policymakers to intervene.”
The resilience of S&P 500 earnings remains intact despite growing recession fears and recent negative price action, Citi strategists said in a Wednesday note.
The bank’s Citi Economic Data Change index, which summarizes US macro data trends, is indicating further deterioration for the U.S. economy.
But interestingly, while economic data was weak in 2022, S&P 500 earnings growth remained flat rather than severely negative, as rolling earnings recessions mitigated the overall index impact.
Overall, the strategists maintain confidence in their $250 EPS forecast for the S&P 500 in 2024, which is slightly higher than the current bottom-up consensus of around $243.
“But even that level of earnings, if not somewhat lower, would still represent significant improvement over 2023,” strategists argued.
“While not locked in by any means, with Q2 reports mostly behind and most corporates essentially halfway through Q3, we struggle to see earnings expectations moving materially lower than current consensus.”
“The bigger issue will be with 2025 earnings should more pronounced macro slowing unfold during the remainder of this year. But, again, we expect more resilience versus history.”
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See you all in chat soon.
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