Stocks slid following a choppy morning session today as investors weighed the impact of higher interest rates and fears of a global slowdown against conflicting news out of China. The S&P and the Dow Jones Industrial Average fell by 0.3% and 0.2%, respectively, while the Nasdaq Composite slumped 0.7%. Oil prices also fell, with Brent crude dropping to near $72 per barrel, its lowest level since January. This came after a decline of around 10% this week and it should make OPEC+’s price target of $100 per barrel that much harder to reach.
It’s apparent that the market remains concerned the global economy, and whether it’s approaching a major, worldwide recession. China sparked a shred of optimism today when it announced today that Beijing would ease some of the country’s Covid restrictions. According to Susannah Streeter, a senior investment and markets analyst at Hargreaves Lansdown, though, poor trade data from the Far East suggests more hardship could be on its way.
“Despite today’s easing of restrictions, it’s clear that China’s COVID-19 nightmare is not at an end,” Streeter said.
According to Beijing, China’s exports contracted by 8.7% year over year (YoY) in November. That was a huge miss vs. the estimate of just -3.9% YoY and a massive drop compared to October’s meager 0.4% annual export contraction. Imports fell 10.6% YoY vs. 7.1% expected.
That’s the fastest imports and exports have fallen in China since 2016, excluding 2020’s Covid crash.
And, in Taiwan, the situation was even worse last month. Taiwanese exports fell 13.1% YoY in November, marking the largest decline for exports in 7 years. Economists predicted a 6.7% YoY contraction by comparison.
In other words, economic activity in China and Taiwan last month was far below even the worst analyst estimates. That bodes poorly for the global economy, especially if WSJ journalist and “Fed whisperer” Nick Timiaros is right, and the Fed seeks to raise its median rate for 2023 at the conclusion of its December meeting.
But that’s not all!
Wall Street doubled down on the morning pessimism when CEO Jamie Dimon warned that the $1.5tn in excess savings held by Americans was being eroded by rising prices and that the declining disposable cash could “derail the economy and cause this mild or hard recession that people are worried about.”
Brian Moynihan, Bank of America CEO, piled on, saying that while consumers were still spending money, the pace was beginning to slow.
Goldman Sachs CEO David Solomon then delivered the final “gut punch” to bulls, predicting that stocks would fall in 2023. He placed the probability of a soft landing at just 35%. It was a surprising take from the Goldman CEO, considering that his bank’s economists recently predicted that the world would avoid a recession next year.
“There’s a very reasonable possibility that we could have a recession of some kind,” Solomon said in an interview.
In spite of the bearish comments, bulls managed to mostly survive the morning session. The major indexes were only trading slightly lower through noon.
And, stocks could remain “coiled” for the next handful of trading sessions as investors await the November Consumer Price Index (CPI), due out next Tuesday. That’s one day ahead of the Fed’s rate hike announcement. If a “hot” CPI reading is revealed, stocks could plummet in response.
A cool reading, on the other hand, could spark a bullish resurgence.
Either way, it’s unlikely that we’ll see a big move unless Fed officials start to make hawkish comments ahead of the December FOMC – something that’s been a common occurrence over the last year prior to meetings where the Fed increased its median rates.
