U.S. stocks closed with mixed results on Tuesday. The Dow Jones Industrial Average broke its losing streak after gaining 35 points or 0.1 percent during closing. S&P 500 and Nasdaq Composite temporarily gained points during the day but eventually closed lower—S&P 500 fell 0.7 percent, and Nasdaq dropped by 1.1 percent.
Higher yields in long-term bonds indicated that investors had grown worried about inflation and the possibility of significant interest rate hikes by the Federal Reserve. A number of financial experts also shared grim outlooks about the economy, including JPMorgan Chase CEO Jamie Dimon, who said that the U.S. would enter a recession within a year.
All times since 1960 when S&P 500 had two consecutive 2.5%-plus days & subsequent 1 w, 1m, 3m & 6m performance pic.twitter.com/jTkKhZqwEr
— Liz Ann Sonders (@LizAnnSonders) October 4, 2022
This week, large U.S.-based corporations are preparing earnings reports for Q3. The information can offer insight into the expectation for Q4 and projected earnings for 2023. Analysts have predicted that most industries will see declines in earnings per share in Q3.
Multinational companies will likely see profit losses due to tight fiscal policies. UBS Asset Management strategists Evan Brown and Lucas Kawa explained how Fed’s policy could affect their profit margins.
“Federal Reserve policy will continue to buoy the US dollar, as tightening will likely continue without a pivot to easing until material evidence of labor market weakness emerges or inflation returns much closer to target,” they wrote.
Investors are currently waiting for the release of the September consumer price index (CPI) on Thursday. Analysts at JPMorgan Chase said that if the number went above 8.3 percent, the stock market would see a significant decline.
Stock market in long term
Data from previous decades showed that “dramatic” gains like last week might signal an approaching bear market bottom. On Monday and Tuesday last week, the S&P 500 had a combined surge of 5.7 percent before losing value five days in a row. After that, however, the market is expected to gain a long and slow momentum.
Bespoke Investment Group explained that at the end of 2008, major indices had performed better for 12 months after two huge rally days. The S&P 500, for example, gained 15 percent a year after two big rallies.
To long-term investors, current market swings provide opportunities to buy assets at lower prices. Navellier & Associates chief Louis Navellier said that the brief gain in the market last week had caused investors to buy stocks to cover short positions.
“That short covering rally we saw on the first two days of October is a big deal. Short covering rallies are how markets reverse,” Navellier said. He added that this situation led to overbuying of stocks in the market.
Nevertheless, the current market volatility has caused a number of investors to sell off assets. CNN Business Fear & Greed Index showed that the market was at "extreme fear" levels.
Indrani De, chief of global investment research at FTSE Russell, warned investors against overreacting to daily movements in the stock market. She said in “high economic uncertainty,” it was inevitable for the stock market to become volatile. She added, however, that “timing the market” was not the right move.
“It’s about time in the market,” she added. “That is very important.”