Stocks fell again today after Friday’s rout that saw the major indexes plummet. The Dow, S&P, and Nasdaq Composite all traded lower this morning as investors weighed the odds of a bear market continuation.
“For the near term at least, pain will be the name of the game. While a test of the June 16 low may now be underway, we don’t foresee a lower low for the S&P 500,” said CFRA Research’s Sam Stovall before offering a silver lining:
“Month to date through August 25, US equities held up better than investors might have anticipated, especially following such a strong return in July and the ongoing uncertainties from multiple fronts.”
Rate-sensitive tech shares, unsurprisingly, suffered the worst losses of the day alongside health stocks as yields surged. The 10-year Treasury yield hit 3.12%, notching a new 50-day high.
Overall, though, today’s modest drop was welcomed by bulls following Friday’s vicious afternoon selloff.
“While the aggressive and unrelenting selling from Friday is abating, there isn’t much genuine buy demand – even the bulls want to get through some of this week’s major macro events (including China’s PMIs and the Eurozone CPI on Wed and the US jobs report on Friday) before stepping back in on the long side,” wrote Vital Knowledge founder Adam Crisafulli.
“The late-summer attendance/volume conditions make the environment even more treacherous than normal, while Sept’s horrible seasonals are just one more factor keeping people on edge.”
Crisafulli hit the nail on the head in his note to clients. The coming jobs report will be critical, but so too will the European Consumer Price Index (CPI). Galloping natural gas prices are expected to have provided significant upward pressure on last month’s CPI.
The European benchmark (Dutch TTF) has done little but zip higher since bottoming in early June. Coal prices are up big over the last few weeks, too.
Poland, which is highly reliant on coal for heat, began selling coal to its citizens for winter. Lines quickly formed to buy the coal at local coal mines, often forcing many Poles to “camp out” in their cars for several days so as to not lose their place in line.
A 57-year-old pensioner named Artur was interviewed about his endeavor to purchase several tons – yes, tons – of coal for his family.
“Toilets were put up today, but there’s no running water,” he said after having spent three nights in his car while waiting in line.
“This is beyond imagination, people are sleeping in their cars. I remember the communist times but it didn’t cross my mind that we could return to something even worse.”
Rising energy costs are arguably the greatest source of inflation, as they impact virtually every price category. The only hope for a cool European CPI print this Friday would be sagging demand and last month’s Brent crude (the European oil benchmark) slide.
Still, the chances of a hot CPI reading are high. And that’s very dangerous for a market reeling from Powell’s hawkish Jackson Hole speech.
