Wall Street opens higher, as Goldman Sachs warns correction hasn’t gone far enough
Newsflash: trading has begun in New York, and stocks are a little higher after the biggest selloff in almost two years.
The S&P 500 index, which tracks a broad swathe of the market has gained 18 points or 0.36% at the open, while the tech-focused Nasdaq is 0.4% higher.
This is a pretty muted recovery, given the S&P 500 lost 3% on Monday and the Nasdaq ended down 3.4%
The much-storied Dow Jones industrial average has opened up a mere 0.04% or 14 points higher at 38,717 points, having lost 2.6% – or over 1,000 points – on Monday.
This won’t recover much of the estimated $6.4 trillion that has been erased from global stock markets in the last three weeks.
BREAKING: In the span of three weeks, $6.4 trillion has now been erased from global stock markets, per Bloomberg.
— unusual_whales (@unusual_whales) August 6, 2024
This comes amid warnings that yesterday’s rout may not be the end of this period of volatility.
Strategists at Goldman Sachs have warned that the stock-market correction has not gone far enough.
In a new research note, Goldman have warned that valuations are still high.
Strategists led by Peter Oppenheimer told clients that Wall Street’s price/earnings ratio – a measure of how highly valued shares are – is still high.
They explained:
Has the correction gone far enough? At this stage probably not.
Valuations have moderated but remain elevated, particularly in the US. Even with yesterday’s moves (August 5), the Global equity market is up c.20% since last October lows and the Nasdaq is up 8% this year.
The current PE for the S&P 500 is still above 20x. Valuations have compressed in the sell off, but still only moderately when compared to history. The MSCI AC World has seen its 12m fwd PE move by less than 2 PE points from 18.5x to 16.5x.
Key events
And finally, here’s our wrap-up of today’s market moves, and warnings that the correction may not be over….
The other main European markets have struggled, though.
Despite the early optimism prompted by Japan’s strong recovery, where the Nikkei surged 10%, German’s DAX failed to rally, finishing down 0.1%, while France’s CAC lost 0.27%
Italy’s FTSE Mib also finished in the red, falling by 0.6% today, and Spain’s Ibex fell 0.3%.
But overall, the pan-European Stoxx 600 index finished 0.2% higher, with stocks in London providing a small lift.
FTSE 100 closes higher
Ding ding! The London stock market is closed, and Britain’s FTSE 100 index has posted its first rise in four sessions.
But it’s a modest recovery.
After heavy losses on Thursday, Friday and Monday, the blue-chip share index has ended today’s session 18.46 points higher at 8026, which is a gain of 0.23%.
UK engineering companies Melrose (+6.6%) and Rolls-Royce (+5.5%) are the top risers.
They’ve followed by technology investor Scottish Mortgage Investment Trust (+4.9%), which is benefitting from the rally in US tech stocks
European stock markets are staging a little late rally, as investors take some heart from the gains on Wall Street.
In London, the FTSE 100 index is now higher on the day – up 27 points or 0.35%.
Wall Street’s fear index is in retreat.
The VIX, as it’s known, is on track for one of its biggest percentage drops ever – currently down 29.84% at 27.06 points.
At one stage yesterday it surged over 60 points, hitting the highest level since early in the Covid-19 pandemic.
The #VIX is down nearly 12 points today to 27 (remember: friends don’t let friends quote percentages of percentages!).
The market is healing, but still a ways to go to revert back toward the average levels of the last couple years. pic.twitter.com/RjOLfsXhWq
— Matt Weller CFA, CMT (@MWellerFX) August 6, 2024
US economic optimism nudges up a little
Just in: economic optimism among Americans has picked up slightly this month, but investors are gloomier (something we’ve seen illustrated in recent days!).
The RealClearMarkets/TIPP Economic Optimism Index has risen by 0.7% this month to 44.5. That leaves it below the historical average of 49.1.
Optimism among investors dropped 2.2% from 53.6 in July to 52.4 in August, while it increased by 3.3% among non-investors, from 39.4 in July to 40.7 in August.
The Six-Month Economic Outlook, which measures how consumers perceive the economy’s prospects in the next six months, rose, but there was a decline in the Personal Financial Outlook, a measure of how Americans feel about their own finances in the next six months.
Confidence in the effectiveness of government economic policies also dropped.
The Dow Jones industrial average is also making a dart higher – it’s up 360 points or 0.9% at 39,064.
Wall Street recovery picks up pace
Stocks are pushing higher on Wall Street.
The S&P 500 index is now up 1%, or 51 points, at 5,237 points. Top risers include cruise company Royal Caribbean (+8%), drinks company Molson Coors (+7.5%), and Uber (+6.8%).
The Nasdaq is also picking up pace, gaining 0.9%.
Fawad Razaqzada, market analyst at CityIndex, cautions that markets are not out of the woods yet.
With a quieter US economic calendar ahead, there will be fewer new recessionary signals to unsettle traders, and the potential for supportive comments from Federal Reserve officials could ease market pressure.
For now, the greenback has rebounded, helped in part by the stronger ISM services PMI that was released on Monday. Still, in light of the recent events and expectations of a sharper pivot by the Fed than was previously expected, the dollar could weaken more broadly instead of just falling against the yen.”
JPMorgan warns carry trade unraveling is only half complete
JPMorgan has also cautioned that one of the factors driving the recent selloff has further to run.
Arindam Sandilya, co-head of global FX strategy at JPMorgan Chase & Co, told Bloomberg TV that the recent unwinding in carry trades has more room to run.
These carry trades involved borrowing cheaply in a currency such as Japan’s yen, and the buying other assets.
Sandilya points out that the yen remains one of the most undervalued currencies, despite rallying since the Bank of Japan raised interest rates last week, undermining the carry trade.
As Sandilya puts it:
“We are not done by any stretch
The carry trade unwind, at least within the speculative investing community, is somewhere between 50%-60% complete.”
Wall Street opens higher, as Goldman Sachs warns correction hasn’t gone far enough
Newsflash: trading has begun in New York, and stocks are a little higher after the biggest selloff in almost two years.
The S&P 500 index, which tracks a broad swathe of the market has gained 18 points or 0.36% at the open, while the tech-focused Nasdaq is 0.4% higher.
This is a pretty muted recovery, given the S&P 500 lost 3% on Monday and the Nasdaq ended down 3.4%
The much-storied Dow Jones industrial average has opened up a mere 0.04% or 14 points higher at 38,717 points, having lost 2.6% – or over 1,000 points – on Monday.
This won’t recover much of the estimated $6.4 trillion that has been erased from global stock markets in the last three weeks.
BREAKING: In the span of three weeks, $6.4 trillion has now been erased from global stock markets, per Bloomberg.
— unusual_whales (@unusual_whales) August 6, 2024
This comes amid warnings that yesterday’s rout may not be the end of this period of volatility.
Strategists at Goldman Sachs have warned that the stock-market correction has not gone far enough.
In a new research note, Goldman have warned that valuations are still high.
Strategists led by Peter Oppenheimer told clients that Wall Street’s price/earnings ratio – a measure of how highly valued shares are – is still high.
They explained:
Has the correction gone far enough? At this stage probably not.
Valuations have moderated but remain elevated, particularly in the US. Even with yesterday’s moves (August 5), the Global equity market is up c.20% since last October lows and the Nasdaq is up 8% this year.
The current PE for the S&P 500 is still above 20x. Valuations have compressed in the sell off, but still only moderately when compared to history. The MSCI AC World has seen its 12m fwd PE move by less than 2 PE points from 18.5x to 16.5x.
Back in the City, stocks are having another wobble.
The FTSE 100 index of leading companies listed in London is now down 48 points, or 0.6%, at 7960, approaching the lows hit in Monday’s slump.
Stocks among the fallers include luxury goods maker Burberry (-4.4%), gambling group Entain (-3.1%) and specialist chemicals maker Croda (-2.3%).
European markets are also weaker, with Italy’s FTSE MIB dropping 1.2%.
Some snap reaction to the US trade data
The US’s Trade Balance for June came in at yet another enormous deficit, at $-73.1 billion, just slightly better than May’s revised $-75.0 billion. These trade deficits get even less attention than the budget deficits but tell a significant story about the economy’s health. pic.twitter.com/jRaYdmZUPk
— David Sommers (@dgsommersmkts) August 6, 2024
US trade deficit drops to $73bn in June
Just in: the US trade deficit has shrunk.
The US ran a deficit in goods and services of $73.1bn in June, which is a $1.9bn drop compared with May when it hit $75bn.
The decline was due to exports rising faster than imports.
There was an increase in sales of US capital goods such as civilian aircraft, and higher exports of US fuel, while imports of industrial supplies and materials dropped.
Exports of US goods and service rose by 1.5% in the month to $265.9bn, while imports only increased 0.6% to $339bn.
Overall, the US ran a goods deficit of $97.4bn, which was partly balanced by a $24.2bn surplus in services.
In the bond markets, the yields – or interest rates – on US government bonds are rising a little today.
Yesterday, Treasury yields dropped as prices rose, with investors keen to buy safe assets.
These moves mean the US yield curve is close to “uninverting”, as they say in the bond markets. That means a return to normal conditions, where it costs more to borrow long-term than in the short term.
Inverted yield curves (where two-year Treasuries trade at a higher yield than 10-year) are often a sign that a recession is looming, tho some experts have warned that the reversal actually shows the slump is close (as the markets anticipate central banks interest rates cuts).
The euro has also weakened against the US dollar, down 0.36% at $1.0913.
Xing Gan, financial markets strategist at Exness says the US dollar is attempted to regain some ground after two sessions of decline.
Concerns about a potential US recession and significant interest rate cuts by the Fed underpinned the dollar’s decline.
Traders are anticipating a possible 50 basis point reduction in September, diminishing the dollar’s appeal. Despite a slight rebound seen in the dollar as better-than-expected US ISM services data and comments by Fed officials eased concerns, looming Fed rate cuts could see downside risks persist for the US dollar.
