Good morning.
The buy-the-dip crowd is making an appearance today. U.S. futures have been rising throughout the morning, as have European stocks. And, the crypto board is a sea of green as Bitcoin is on track to hit a four-week-high.
Still, investors are wary. The S&P 500 has been on a shaky run of late. For the third time in the past five sessions, the benchmark yesterday fell by more than 1%. For 2021, a year of grinding out steady-as-she-goes incremental gains day in and day out, that’s pretty exceptional.
The next big trigger for stocks—after Friday’s jobs report—will be earnings season. That’s the take of Wall Street giants Goldman Sachs and Bank of America Securities. I examine their year-end calls in today’s essay.
But first, let’s spin the globe and see what’s moving markets.
Markets update
Asia
- The Asian markets are lower again with the Nikkei down nearly 2.2%. Trading in mainland China won’t resume until Friday.
- Earlier today, Fumio Kishida was voted in as Japan’s new prime minister. On cue the bluechip Nikkei 225tumbled into correction territory. Tough crowd.
- Last week the bogeyman of the markets was bond yields. This week it’s rising oil prices, which touched a seven-year-high yesterday. The reason: OPEC and Russiaagreed to stand pat on production even as global energy prices surge.
Europe
- The European bourses are bouncing back, with the Stoxx Europe 600 up 0.5% in early trading. Banks were leading the way higher at the open.
- Supply fears are once again roiling the energy markets. Natural gas and electricity prices hit fresh highs overnight, and that’s weighing on concerns about Europe’s industrial production in the months ahead.
U.S.
- U.S. futures—including tech futures—continue to point to a positive open. That’s after the S&P 500, hurt by tech stocks, fell to its lowest level since July.
- Adding to investor jitters is the roadblock in Washington over raising the debt limit. Yesterday, President Biden told the Republicans to “just get out of the way and let us pass it.” Sounds like negotiations have hit a new low.
- Shares in Facebook fell nearly 5% yesterday (they’re up a smidge in pre-market trading this morning) after the company’s epic global outage that cost the social network giant millions. It was so epic that I learned about it hours later… on the radio.
Elsewhere
- Gold is down, trading around $1,760/ounce.
- The dollar is climbing again.
- Brent is gaining, trading above $81/barrel—yes, that’s a price we last saw during the Obama years.
- Crypto is up this morning. Bitcoin is up more than 3% trading near $50,000. Ethereum’s Ether is more or less flat.
***
Goldman vs. BofA Securities
We hit a kind of inglorious milestone amid last week’s sell-off.
According to Goldman Sachs chief U.S. equity strategist David Kostin, “in late September, after 226 trading days without a 5% decline, the S&P 500 index finally crossed the threshold.” That may not sound like a big deal to you and me, but the quants on Wall Street see that as a warning sign.
After yesterday’s dud, the benchmark is now down 5.2% from its Sept. 2 all-time high. It now sits at 4,300, which is about 8.5%below Goldman’s year-end target of 4,700. Goldman, by the way, is sticking with that call.
Over in the bearish corner, we have BofA Securities. They have a 4,250 year-end target blinking, blinking, blinking on the screen. We’re about 1% above that right now.
Where they both agree is on the importance of earnings season, which kicks off in earnest next week. As Kostin points out, knock-out earnings growth has been the biggest catalyst behind S&P gains this year.
BofA’s equity & quant strategist, Savita Subramanian, interjects, that’s part of the problem as we look ahead. “We see several headwinds, especially into 3Q earnings,” she wrote in an investor note yesterday. “A number of companies have already issued disappointing guidance amid a worsening inflation environment.”
What are those headwinds, by the way? Surging energy prices, global growth concerns (mainly thanks to China), and of course spiking bond yields.
Those factors are clearly weighing on investors. On cue, the VIX, or so-called fear index, jumped 40% last month, BofA points out.
But, it should be noted, the VIX is still at a moderate level, by historical standards. And, even BofA is seeing reason not to bail just yet on this market.
“Our Sell-Side Indicator showed a dip in bullish sentiment, but it still hovers right below a ‘Sell’ signal,” Subramanian writes.
Judging by the feedback I’m getting from Bull Sheet readers, you too are torn about what to do next: sell or stick it out?
***
Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com
As always, you can write to bullsheet@fortune.com or reply to this email with suggestions and feedback.
Today's reads
Most Powerful Women: 2021 Edition—Fortune
Pandora Papers show tax crackdowns are no match for the superrich—Fortune
Volvo announces $2.9 billion IPO as it looks to fund shift to electric cars and catch up with Tesla—Fortune
The Stock Market’s Hot Summer Became a Swoon. Where Does It Go Next?—The New York Times
Dollar Strength Gives Wall Street Something New to Worry About—Wall Street Journal
Market candy
Quote of the day
It’s not going to be the same sort of ‘risk-assets-always-go-up-over-time’ story that maybe happened in the rebound from Covid.
That was Emily Weis, State Street macro strategist, on Bloomberg Television, warning that we probably shouldn't be counting on the buy-the-dip crowd to restore markets after they sink.
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