Pre-market trading: Wall Street avoided the train strike crisis, but trouble lies ahead

But it is not the only potential catalyst for another market sell-off, as uncertainty remains prevalent.

What’s happening: Active investors have had a tough year — more than half of U.S. equity fund managers underperformed the S&P 500 in the first half of 2022, according to S&P Dow Jones Indices. Unfortunately, there is more upside for investors in the coming weeks.

See here: Shares of FedEx are nearly 20% lower in premarket trading on Friday after the company said it was withdrawing financial guidance it issued months ago and cutting costs as demand for packages worldwide slumped. The company is seen as a driver of the economy because of its vision for multi-industry shipping.

1. The US Federal Reserve will meet next week. Persistent inflation, recession fears and slowing economic growth have rattled markets around the world. Now as major central banks implement aggressive rounds of tightening monetary policy to combat inflation, investors fear they may go too far.

On Wednesday, the US Federal Reserve will announce its next rate hike decision. Faced with a tight labor market and high inflation, Fed Chairman Jerome Powell delivered a grim message to investors — saying the central bank is likely to raise interest rates by another 75 basis points for the third time in a row.

If the Fed continues to be aggressive at the expense of economic growth, we can expect months of cooling employment figures, especially wage data, and widening credit spreads that make it more expensive for businesses to borrow.

That means higher bond yields, lower stock prices and less chance of a crash.

2. Earnings season is coming. Another risk on Wall Street is softer corporate earnings in October.

About half of all S&P 500 (INX)companies cited a “recession” in second-quarter earnings calls, the highest number since 2010. Wall Street’s estimates for the next quarter reflect this gloom.
Estimates for third-quarter earnings per share have fallen more than 5.5% since the end of June, according to FactSet data. That’s the biggest drop in a quarter since the second quarter of 2020 (when Covid-19 plunged the United States into recession).

Analysts at Charles Schwab forecast weaker earnings growth for 2022 compared to last year.

3. War in Ukraine. Markets have been buoyed by Ukraine’s progress, but the outcome of the war is uncertain. That should take care of investors. Even if the conflict continues to favor Ukraine, Europe is unlikely to avoid an energy crisis-induced recession this invasion-induced winter.

Global flows of goods, including critical supplies of fossil fuels, food and fertilizers, continue to be disrupted regardless of which side wins the battle. A new report by S&P Global Ratings estimates that war-related global energy and food shocks will continue until at least 2024. These shocks will continue to weigh on GDP and fiscal performance.

US mortgage rates have jumped to a 14-year high

US mortgage rates rose above 6% this week, reaching their highest level since the fall of 2008.

High borrowing costs and poor inventory levels continue to weigh on Americans looking for affordable housing, reports colleague Anna Bahney.

Very high inflation is responsible for rising rates, said Freddie Mac Chief Economist Sam Khater.

Rates fell in July and early August as recession fears took hold. But comments from Federal Reserve Chairman Jerome Powell and recent economic data have drawn investors’ attention to the central bank’s fight against inflation by raising rates.

There is a silver lining for those who want to buy. As mortgage rates rise and home prices remain high, home sales slow. Prices may also drop soon.

With borrowing costs expected to continue to rise in the coming months, it is becoming increasingly clear that house prices must fall to bring housing markets back into balance.

“Many sellers are recognizing the change in market conditions and are responding by lowering their asking prices,” said George Ratiu, manager of economic research at Realtor.com. “These changes are consistent with when buyers have historically found the best market conditions to find a bargain.”

China and Russia’s economic relations are growing

Chinese leader Xi Jinping and his Russian counterpart Vladimir Putin met face-to-face on Thursday after Moscow sent troops to Ukraine earlier this year. Investors watched the meeting closely for clues about the state of their financial relationship.

At the start of the meeting, Putin admitted that Xi had “questions and concerns” about the invasion. Their economic partnership, however, did not appear to be in jeopardy, as my CNN colleague Nectar Gan reports.
Beijing has pushed bilateral trade to record highs thanks to Russian businesses amid Western sanctions. China’s spending on Russian goods increased 60% in August from a year ago. Shipments to Russia rose 26% in August to $8 trillion, colleague Laura He reported.

At the meeting, Putin highlighted the deepening of economic relations between the two nations, and pointed out that bilateral trade exceeded 140,000 billion dollars last year. “I am sure that we will reach new records by the end of the year, and in the near future,” he said.

Beijing has carefully avoided violating Western sanctions or providing direct military aid to Moscow, but Chinese companies are taking advantage of the exodus of Western brands from Russia.

Chinese smartphones accounted for two-thirds of all new sales in Russia between April and June, Reuters reported. Passenger cars from Chinese manufacturers accounted for nearly 26% of the Russian market in August, the highest on record, according to Russian analysis agency Autostat.

the next

A first look at the University of Michigan consumer sentiment survey for September is released at 10:00 a.m.

It’s coming up next week: it’s the week when central banks hit it big with the Federal Reserve and the Bank of England to announce their latest policy decisions.

Correction: An earlier version of this story incorrectly attributed the quote to sellers recognizing a change in market conditions. George Ratiu, manager of economic research at Realtor.com, should be credited.