The stock market cannot rise forever and major indices took a breather on Wednesday ahead of the release of the minutes of the July afternoon meeting of the Federal Reserve.
The Dow Jones Industrial Average is down 200 points or 0.6%, the S&P 500 is down 0.8% and the Nasdaq Composite is down 1.1%. The Dow and S&P 500 posted modest gains on Tuesday.
Scanning the newswires for potential catalysts for the weakness doesn’t lead to many opportunities. On Wednesday,
Target
(ticker: TGT) reported a broad miss on second-quarter earnings as
lowe’s
(LOW) beat earnings estimates, but same-store sales were below forecasts. US retail sales in July were flat from June, but that was largely due to falling gasoline prices.
Perhaps the answer lies abroad. Finally, UK inflation rose 10.1% in July to its highest level since the 1980s, as reports circulated that Chinese Prime Minister Li Keqiang encouraged officials in six provinces to do more to boost growth. All of that doesn’t sound right, especially as strategists continue to worry about the possibility of a global recession.
“While our baseline (modal) forecast sees the global economy narrowly avoiding a recession, we believe the risks are very much on the downside,” wrote Nathan Sheets of Citigroup. “These include a stronger-than-expected downturn in the euro area, the failure of Chinese authorities to provide sufficient stimulus and a faster easing of US consumer spending and labor market conditions.”
Investors will look to learn more about what the Federal Reserve thinks when the minutes of its July meeting, where it raised interest rates by three-quarters for the second month in a row, are released at 2 p.m. GMT.
“Investors will look in the Minutes report for evidence that the Fed could slow the pace of rate hikes as inflation rates begin to slow,” said Geetu Sharma, founder and investment manager of Minneapolis-based AlphasFuture LLC.
That means investors have at least some trepidation. But don’t forget that the S&P 500 is up 18% from its June low just over two months ago.
That’s quite a run, and the stock market would just need a break. The question is how big of one. One measure to watch: the CBOE Volatility Index, or VIX, sitting just below 20, at 19.91, on Wednesday. It could be set to move higher, stated Katie Stockton of Fairlead Strategies, which would be a warning sign for all investors. “This could foreshadow a loss of confidence in the relief rally (ie more hedging), increasing the risk of a loss of short-term momentum behind the inversely correlated SP,” she wrote.
We’ll have to get through the Fed minutes first.
Here are some stocks in motion Wednesday:
Manchester United
(MANU) rose 4.5% after Elon Musk said he bought the British football club and then said it was a joke in a subsequent Twitter post. Shares of Musk’s electric vehicle company,
Tesla
(TSLA), were down 1%.
Bed Bath & More
(BBBY) rose 25%. The stock is up nearly 350% in the past three weeks amid a frenzy of meme stock buying.
Target
(TGT) is down 4% after second-quarter earnings fell short of Wall Street’s forecasts.
lowe’s
(LOW) is up 0.8% after second-quarter earnings exceeded analyst estimates.
Teladoc Health
(TDOC) is down 3.3% after being cut to sell at Guggenheim.
Write to Ben Levisohn at [email protected] and Joe Woelfel at [email protected]
