Business

Traders are betting on the stock market – and this time, it’s not a contrarian signal, Citi says


The market continues to absorb the buzz from this week’s Federal Reserve policy decision. S&P 500
SPX

abandoned part of the latest rally after Chairman Jerome Powell suggested it was likely that borrowing costs would peak at higher levels than investors had previously thought.

The benchmark is still down 22.5% on the year. Nasdaq 100
NDX,

flooded with outcast old tech lovers, down 35.2%.

If the stock had an anthem it would be “In heaven know that I’m troubledFrom the ’80s indie group The Smiths. Play on a loop.

As the chart below from Citi shows, on Fed Day, traders bought piles of ETFs that track indexes like the S&P 500, Nasdaq 100, and Russell 2000, with the largest lot expiring in just two weeks. from now on. Traders seem to be betting on more downside for the stock.

Source: Citi

However, this negative level can provide an opposite bullish indicator. Eventually even the pessimism is exhausted. The Peloton Witness
PTON,

shares fell nearly 20% to their latest low after Thursday’s results, but ended the session up 8%.

So does this mean we are ripe for another rebound? Don’t bet on it, Citi said. The bank’s global strategy team, led by Jamie Fahy, says investors should beware of another step in share prices.

“Despite some high earnings missed throughout the current season, overall, US Q3 earnings were fine. With an unexpected 4% EPS and 3% growth, this is not a very different result from last season. We will warn though, all is not well in terms of the stock market,” Fahy wrote in a note to clients.

There are three main reasons for his caution.

First, and this should really come as no surprise to anyone, the Fed is no longer the market’s friend, although some still cling to the former era of loose codling.

Powell has “failed to appease the market to its pivot dreams. As the Fed’s peak valuation shifts to new highs, stocks are threatening to revisit the lows. Fahy said that the short-term positioning is much clearer now than it was four weeks ago.

Second, the internal stock market is what he calls “soggy”. “Despite the recent market squeeze higher, protection systems continue to outperform the cycles, while the probability of Citi’s basket of defaults remains low…. The EPS recession is on and that could send the market down another 20%.”

That would take the S&P 500 below 3,000, to its lowest level since spring 2020.

In the end, it is unlikely that the seasonal whirlwinds – for which many bulls are raising hopes – will come to the rescue.

“It seems odd to put short-term stocks into a period that has historically shown strong seasonal performance. But as noted by Citi’s quantum strategists, the traditional Santa Claus rally didn’t take place when the first 10 months of the year returns were negative,” Fahy said.

Citi concludes that it recommends buying short-term shares through S&P 500 call options.

Market

Stocks trying to break four-day losing streak with S&P 500 futures
ES00

add 0.7% to 3754. Dollar’s latest rally is on pause, dollar index
DXY

down 0.4% to 112.53 in sterling
GBPUSD

and the euro
EURUSD

push higher. 2-year Treasury yield
BX: TMUBMUSD02Y,

which is particularly sensitive to Fed policy, rose 3.5 basis points to 4.763%, the highest level since 2007.

Buzz

It’s the job report day. Fed’s Powell emphasized in his comments on Wednesday, after offering another 75 basis point rate hike, that the ultimate rate in this tightening cycle will be determined by evidence of inflation. output is decreasing significantly. And the Fed thinks that to get there, the labor market will likely have to weaken.

But it’s still strong. Data released at 8:30 a.m. showed that 261,000 net jobs were created in the US in October, more than economists’ forecast of 205,000. The unemployment rate is expected to hold at 3.5% but has risen to 3.7% and average hourly earnings growth is forecast to remain at 0.3% but inched to 0. 4%.

Shares of PayPal
PYPL

nearly 5% drop in pre-market trading, compared to 5-year low, behind digital payments group cut its revenue forecast for the whole year in an after-hours report.

Prepare for a longer wait. Starbucks
SBUX

says “customizable drinks,” the kind ordered by someone that requires both the jeans and the drink to be thinner and more difficult to make, will help overcome the slump in economic downturns. Shares edged slightly higher after the coffee chain announced results after Thursday’s closing bell.

Apple
AAPL

To be Reportedly Hiring Suspended as it tightens its belt to match other big tech conglomerates. But at least they don’t dumping workers just like Elon Musk is said to have a plan to do at Twitter.

Hong Kong’s Hang Seng Index
HK: HSI

rebounds to 5.4% as hopes continue to build that Beijing will soften its COVID-19 policy to zero and then US audits of Chinese companies have ended. The prospect of more Chinese economic activity lifted US oil futures
CL

up 3.4% to $91.15 per barrel.

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Chart

Markets are still trying to regain composure following Wednesday’s Fed reversal. Or to be more precise, Powell Shellacking. That’s because it was the Fed Chair’s comments, not the Open Market Committee’s rate hike and accompanying statement, that worried traders.

The chart below shows how the S&P 500 performed during the last 90 minutes of the Fed day — in other words, from 2:30 p.m. ET when Powell began his press conference. The reaction to Powell’s latest conversation was the worst ever. If the Fed president really wants a bearish stock market to help in the fight against inflation, he just needs to keep talking.

Source: Bespoke Investment

Top code

These are the most active stock market stocks on MarketWatch as of 6 a.m. ET.

Ticker

Security name

TSLA

Tesla

GME

GameStop

NIO

NIO

AAPL

Apple

AMC

AMC Entertainment

AMZN

Amazon

MULN

Mullen car

BBBY

Outdoor shower bed

TORTOISE

Alibaba

APE

Priority AMC Entertainment

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