Nasdaq 100, S&P 500 Extend Losses, Dow Jones Ekes Out Small Gain

US Stock Market Key Points:

• TheS&P 500 and Nasdaq 100 continue to fall amid global recession fears and risks to financial stability. The Dow Jones bucks the trend with a small gain
• BoE’s Bailey confirms the end of the emergency bond buying program
• All eyes are on tomorrow’s PPI and FOMC minutes. CPI report is on Thursday

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U.S. stock indexes traded lower on Tuesday amid growing recession fears, spurred by IMF warnings of worsening macroeconomic conditions following the fallout from the war in Ukraine, persistently high inflation and slowing activity in China. As the session progressed, stocks seesawed, but then extended losses as yields erased a large pullback to end nearly unchanged.

Focusing on the IMF and the World Bank, both organizations noted that much of the global economy is headed for recession next year, while financial stability risks are tilted to the downside. The IMF downgraded the 2023 growth for many economies, stressing that “the worst is yet to come”. The institution highlighted that China’s real estate crisis is worsening and there are growing risks of contagion to banks, local governments, and corporations. As for the U.S., it is expected to grow a skimpy 1.6% in 2022 and 1.0% next year, but countries such as Germany and Italy are projected to contract in 2023.

The sour tone set by this gloomy outlook gave investors no reason to buy risky assets at the opening bell, but the release of the latest NY Federal Reserve consumer survey and a round of Fed rhetoric gave a sense of relief before the market closed.

The NY Fed’s September survey of consumer expectations showed that participants project their spending will increase by 6% over the next year, down from August’s 7.8% prediction. Regarding inflation, consumers expect price pressures to rise less aggressively in the near term but will remain high over the medium term. Respondents see inflation at 5.4% in one year, down from 5.7% in August, which is the lowest reading in twelve months.

At the close, the S&P 500 and Nasdaq 100 fell 0.65% and 1.24% respectively, but the Dow Jones bucked the trend, notching a small gain of 0.12%. Four of the eleven sectors of the S&P advanced. Real estate, consumer staples and healthcare finished in positive territory, while the communications and the technology sectors led the decline.

TECHNICAL OUTLOOK

From a technical standpoint, the S&P 500 built a streak of five consecutive days of losses after rallying in the first two days of October amid 3Q rebalancing flows. During the session, bears broke the key support level of 3600 which is near the 50% Fibonacci retracement level and converges with the 200-week moving average. The low of the day was 3579. If we see a weekly close below 3600, the next floor is seen around 3540.

S&P 500 (ES1) Mini Futures Weekly Chart

S&P 500 Mini Futures Chart. Prepared UsingTradingView

Looking ahead, traders should watch the FOMC minutes and US PPI on Wednesday. On Thursday, the focus should be on the September inflation report prior to the official start of the third quarter earnings season on Friday.

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—Written by Cecilia Sanchez-Corona, Research Team, DailyFX