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Global Conditions Keep Bear Hug on the Market

·3 min read

For yet another day in a troubled past five sessions of trading, market indices were unable to hang onto gains early, amid a swirl of doubt and potential struggle on the horizon. Mixed results on PMI and ISM Services this morning set forth a rollercoaster of trading — from a muted Services picture allowing for a scenario in which the Fed brings a new rate more dovish later this month, to a glimpse of a dire economic picture currently facing the Eurozone.

Over the weekend, Russia decided it would shut down the Nord Stream energy pipelines to Europe — ahead of colder fall and winter months — until sanctions are lifted against the country. The sanctions were brought about following Russia’s invasion of Ukraine in late February; six months later, the war in Ukraine looks to be deeply entrenched on both sides. Add to this OPEC announcing production cuts, and we see a barrel of oil now back up over $88 per barrel today.

And as energy costs and concerns threaten the economy of the EU, global companies based in the U.S. are bound to feel the heat, as well. We’ve already heard from a plurality of analysts strongly suggesting that earnings guidance for Q3 — which starts reporting roughly a month from now — have not come down low enough, which suggests even with seven straight down-days on the Nasdaq, companies and the markets they’re trading on are still relatively overvalued.

Meanwhile, the 10-year Treasury bond yield jumped to its highest level since June 16th of this year,  3.345%, while the yield curve been the 2-year (3.499%) and 10-year continues now into its fourth-straight month. And if the June 16th date rings any alarms, perhaps it ought to: June 16th is also the same day the market indices set in their 52-week lows, barely six months removed from all-time highs on the Dow and S&P 500 from the initial trading days of 2022. Will these lows be tested here in the last third of the year? That is indeed the question.

Thus, the Dow has given back another -170 points today, -0.54%, the S&P -0.40%, and the Nasdaq has hived off an additional -0.74% for the session. Worst of all was the Russell 2000, -0.98% on the day. The small-cap index is down -7.7% over the past month, with the Nasdaq the only index performing worse over that period. We’re also a little rudderless is this slow news week, aside from a plethora of Fed-speak ahead of their blackout period.

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