Stocks start the week with losses;  Oil exceeds $80:

Stocks start the week with losses; Oil exceeds $80:

(Bloomberg) – Stocks fell on fears the recent rally may be overdone amid uncertainty over whether aggressive tightening by the Federal Reserve could trigger a recession.

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The S&P 500 was under pressure after capping a straight weekly advance. Tesla Inc. sank when Bloomberg News reported that the electric vehicle maker planned to cut production at its Shanghai factory. West Texas Intermediate crude rose above $80 a barrel after China made further progress toward reopening the economy and sanctions on Russian crude exports by sea took effect.

Morgan Stanley’s Michael Wilson, one of the U.S. stock market’s most vocal skeptics, has seen enough of the recent rally he predicted and says investors better book profits. He expects the S&P 500 to resume declines after the index broke above its 200-day moving average last week, saying “we are selling again.”

Even though the S&P 500 is on track for its biggest fourth-quarter gain since 1999, the stock market recovery is expected to be sluggish. An analysis of every bear market since 1960 suggests it could easily take more than two years to recover from the index’s previous peak, particularly if the recession affects the short-term outlook, said Bloomberg Intelligence strategists Gina Martin Adams and Michael Casper.

“Markets are likely to remain volatile and we don’t believe the economic conditions for a sustained recovery are yet in place,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “In our view, economic growth is likely to slow further next year as the cumulative impact of Fed rate hikes weighs on activity.”

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Meanwhile, U.S. small-cap equities showed signs of losing momentum heading into the end of the year, raising concerns about what this signals for broader risk appetite. market. Still, they could be about to get a boost, if history is any indication.

In fact, December marks the second best month for the Russell 2000 since 1979. Although small caps, as measured by the Russell 2000, tend to soften during the US midterm elections in December, the index only lost ground three times in 10 of those months. years since 1982, with an average small cap gain of 0.3%.

“Whether we get Santa Claus or the Grinch in December, we remain concerned about the start of 2023 for equities given the likely onset of a tough economy and another big wave of EPS estimate downgrades, as well that the stock market tends to fall in the month before the latest Fed hikes (which our economists predict will occur in March),” wrote Lori Calvasina, head of U.S. equity strategy at RBC. Capital Markets.

A majority of 291 respondents to the latest MLIV Pulse survey said leveraged loans would be the canary in the coal mine to indicate deteriorating corporate credit quality.

About 28% of survey respondents expect defaults to rise significantly if U.S. rates peak at 5% or lower, which is around where the market is betting the Fed will stop. to climb. Another 63% see defaults increase if rates peak above 5%. The current benchmark is in a range between 3.75% and 4%.

Key events this week:

  • U.S. Trade, Tuesday

  • EIA Crude Oil Inventory Report, Wednesday

  • Eurozone GDP, Wednesday

  • Applications for MBA mortgages in the United States, Wednesday

  • ECB President Christine Lagarde speaks on Thursday

  • First unemployment claims in the United States, Thursday

  • U.S. PPI, Wholesale Inventories, University of Michigan Consumer Sentiment, Friday

Some of the major movements in the markets:


  • The S&P 500 fell 0.5% at 9:36 a.m. PT

  • The Nasdaq 100 fell 0.3%

  • The Dow Jones Industrial Average fell 0.5%

  • The Stoxx Europe 600 fell 0.3%

  • The MSCI World index was little changed


  • The Bloomberg Dollar Spot Index rose 0.1%

  • The euro rose 0.3% to $1.0564

  • The British pound fell 0.2% to $1.2261

  • The Japanese yen fell 1.1% to 135.79 per dollar


  • Bitcoin rose 0.6% to $17,225.28

  • Ether rose 0.7% to $1,286.32


  • The yield on 10-year Treasury bills rose seven basis points to 3.55%

  • The German 10-year rate rose two basis points to 1.88%

  • The UK 10-year yield fell three basis points to 3.12%


  • West Texas Intermediate crude rose 3.1% to $82.46 a barrel

  • Gold futures fell 0.3% to $1,803.80 an ounce

This story was produced with assistance from Bloomberg Automation.

–With help from Vildana Hajric, Emily Graffeo and Isabelle Lee.

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