The steady drumbeat of warnings that the American economy is careening towards a recession finally struck a nerve on Wall Street.
Investors who had tuned out warnings for the past two months — from the most inverted Treasury yield curve in four decades to a wipeout for 2022’s heady oil price gains — began trading as if the biggest threat to risk assets was now a looming downturn in growth.
Cyclical stocks led the S&P 500 to a 3.4 per cent drop in the week after the equity benchmark failed to hold above its average price for the past 200 days.
While optimism that the Fed would slow the pace of rate increases had stoked a 14 per cent rally since mid-October, investor moods have now darkened with worries that such a move, when it does come, will be the mark of an economy laid low.
Already signs are emerging that the growth is buckling under the Fed’s aggressive tightening. The US services sector contracted last month. Although the labour market remains sturdy, some weakness has appeared, most recently in another rise in continuing claims for jobless benefits.
At the same time, inflation may have peaked but it’s still elevated enough to keep the Fed vigilant, raising the risk it will overtighten.
“We will shift from seeing ‘bad data’ as being ‘good’ to bad data being bad because it is a signal the economy is weakening faster and worse than most expected,” said Peter Tchir, head of macro strategy at Academy Securities.
Markets have started trading the stream of gloomy economic news as bad, rather than a reason to rally on the prospect for easier Fed policy. At the same time, inflation remains elevated — evidenced by an unexpectedly rapid rise in producer prices last month — and the central bank will render its final policy verdict of the year on Wednesday. Taken together, it was enough to squash the fall rally.
Since equities peaked on the final day of November, energy shares have led the retreat, a departure from all three previous selloffs of 2022 when raging inflation spurred demand for materials producers. Companies that are more sensitive to the economy, like financial firms and makers of consumer products, are among the laggards in December.
The shift in narrative is also obvious in fixed income. Earlier in 2022 when the inflation scare was raging, bonds tumbled in each of the three instances when the S&P 500 fell at least 10 per cent from a peak.
Now bonds have begun to reclaim their place as a recession hedge. On Wednesday, a rally in long-dated debt pulled 30-year yields below 3.5 per cent, a level last seen in September. The iShares 20+ Year Treasury Bond exchange-traded fund has climbed 9 per cent in the past three weeks.
“If you’re buying stocks based on the idea that lower interest rates are coming at some point in the future, unfortunately that implies that a weaker economy is also coming at some point in the future,” said Steve Sosnick, chief strategist at Interactive Brokers. “So be very careful what you wish for.”
The message was endorsed at the highest echelons of Wall Street in recent days, where bank chiefs had a uniformly grim outlook for slowing growth and corporate earnings. Even sellside analysts, predisposed to talk up assets they sell, have been sounding notably downbeat, predicting a decline in 2023.
We will shift from seeing ‘bad data’ as being ‘good’ to bad data being bad because it is a signal the economy is weakening faster and worse than most expected
Peter Tchir,
head of macro strategy at Academy Securities
The average projection of strategists tracked by Bloomberg is for the S&P 500 to end next year at just 4,009 — their most pessimistic call since at least 1999.
Positioning and trading patterns also showed a shift away from risk assets. Investors exited global stocks at the fastest pace in five months, dumping $35 billion in the past three weeks after they’d amassed $23 billion just a week earlier, according to EPFR data. Signals in the breadth of moves also reinforced the fleeting nature of recent gains, mirroring conditions that presaged the end of rallies in March and August.
Technical levels that had spurred buying in November buckled in the week. The S&P 500 failed to hold above its 200-day moving average and then slid through a retracement level that had given succor to bulls.
What complicates things further is that the November’s equity rally has triggered the fastest easing in financial conditions since March 2020, according to a Goldman Sachs Group gauge, casting doubts on the Fed’s ability to switch to looser policy starting next year.
Fed policymakers appear determined to see their tightening campaign through to peak of about 5 per cent, after being caught out by the intensity and staying power of price pressures. That’s bad news for an economy that looks set to contract at some point next year.
“There’s a lot more pain that has to come through,” said Justin Burgin, director of equity research at Ameriprise Financial. “We’ve barely seen the lag effect of the fastest rate hike in history.”
The Africa Institute 101
Housed on the same site as the original Africa Hall, which first hosted an Arab-African Symposium in 1976, the newly renovated building will be home to a think tank and postgraduate studies hub (it will offer master’s and PhD programmes). The centre will focus on both the historical and contemporary links between Africa and the Gulf, and will serve as a meeting place for conferences, symposia, lectures, film screenings, plays, musical performances and more. In fact, today it is hosting a symposium – 5-plus-1: Rethinking Abstraction that will look at the six decades of Frank Bowling’s career, as well as those of his contemporaries that invested social, cultural and personal meaning into abstraction.
Our family matters legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
Dust and sand storms compared
Sand storm
- Particle size: Larger, heavier sand grains
- Visibility: Often dramatic with thick "walls" of sand
- Duration: Short-lived, typically localised
- Travel distance: Limited
- Source: Open desert areas with strong winds
Dust storm
- Particle size: Much finer, lightweight particles
- Visibility: Hazy skies but less intense
- Duration: Can linger for days
- Travel distance: Long-range, up to thousands of kilometres
- Source: Can be carried from distant regions
The%20specs
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Specs
Engine: 51.5kW electric motor
Range: 400km
Power: 134bhp
Torque: 175Nm
Price: From Dh98,800
Available: Now
UPI facts
More than 2.2 million Indian tourists arrived in UAE in 2023
More than 3.5 million Indians reside in UAE
Indian tourists can make purchases in UAE using rupee accounts in India through QR-code-based UPI real-time payment systems
Indian residents in UAE can use their non-resident NRO and NRE accounts held in Indian banks linked to a UAE mobile number for UPI transactions
The specs
Engine: 3.0-litre six-cylinder turbo
Power: 398hp from 5,250rpm
Torque: 580Nm at 1,900-4,800rpm
Transmission: Eight-speed auto
Fuel economy, combined: 6.5L/100km
On sale: December
Price: From Dh330,000 (estimate)
GOLF’S RAHMBO
- 5 wins in 22 months as pro
- Three wins in past 10 starts
- 45 pro starts worldwide: 5 wins, 17 top 5s
- Ranked 551th in world on debut, now No 4 (was No 2 earlier this year)
- 5th player in last 30 years to win 3 European Tour and 2 PGA Tour titles before age 24 (Woods, Garcia, McIlroy, Spieth)
If you go
The flights
Emirates and Etihad fly direct to Nairobi, with fares starting from Dh1,695. The resort can be reached from Nairobi via a 35-minute flight from Wilson Airport or Jomo Kenyatta International Airport, or by road, which takes at least three hours.
The rooms
Rooms at Fairmont Mount Kenya range from Dh1,870 per night for a deluxe room to Dh11,000 per night for the William Holden Cottage.
The years Ramadan fell in May
If you go:
The flights: Etihad, Emirates, British Airways and Virgin all fly from the UAE to London from Dh2,700 return, including taxes
The tours: The Tour for Muggles usually runs several times a day, lasts about two-and-a-half hours and costs £14 (Dh67)
Harry Potter and the Cursed Child is on now at the Palace Theatre. Tickets need booking significantly in advance
Entrance to the Harry Potter exhibition at the House of MinaLima is free
The hotel: The grand, 1909-built Strand Palace Hotel is in a handy location near the Theatre District and several of the key Harry Potter filming and inspiration sites. The family rooms are spacious, with sofa beds that can accommodate children, and wooden shutters that keep out the light at night. Rooms cost from £170 (Dh808).
Quick pearls of wisdom
Focus on gratitude: And do so deeply, he says. “Think of one to three things a day that you’re grateful for. It needs to be specific, too, don’t just say ‘air.’ Really think about it. If you’re grateful for, say, what your parents have done for you, that will motivate you to do more for the world.”
Know how to fight: Shetty married his wife, Radhi, three years ago (he met her in a meditation class before he went off and became a monk). He says they’ve had to learn to respect each other’s “fighting styles” – he’s a talk it-out-immediately person, while she needs space to think. “When you’re having an argument, remember, it’s not you against each other. It’s both of you against the problem. When you win, they lose. If you’re on a team you have to win together.”
The 12 Syrian entities delisted by UK
Ministry of Interior
Ministry of Defence
General Intelligence Directorate
Air Force Intelligence Agency
Political Security Directorate
Syrian National Security Bureau
Military Intelligence Directorate
Army Supply Bureau
General Organisation of Radio and TV
Al Watan newspaper
Cham Press TV
Sama TV
Volvo ES90 Specs
Engine: Electric single motor (96kW), twin motor (106kW) and twin motor performance (106kW)
Power: 333hp, 449hp, 680hp
Torque: 480Nm, 670Nm, 870Nm
On sale: Later in 2025 or early 2026, depending on region
Price: Exact regional pricing TBA