Stocks Open Lower on Monday – S&P 500 Heads for New 2022 Closing Low

JPMorgan’s Marko Kolanovic believes the market could be close to a bottom after the Fed-triggered sell-off pushed stocks into “very oversold” conditions.

“While the market has now settled into a view that Fed will continue with outsized hikes, we don’t believe one should keep extrapolating the hawkish policy stance direction,” the bank’s chief global markets strategist said in a Monday note.

Kolanovic, one of the biggest bulls on Wall Street, said he’s seeing some encouraging signs on the inflation front. Still, he noted that volatility will likely stay elevated until the next set of inflation reports.

“Some pre-conditions for a market bottom are falling into place: stocks are looking increasingly cheap and approaching deep-value outside of the US, and positioning is extremely depressed,” Kolanovic said.

— Yun Li

Real estate and utilities were the two biggest laggards in the S&P 500 during Monday trading, with the sectors down 3.1% and 2.5% during Monday trading.

Shares of real estate companies Ventas and Kimco Realty were the two worst performing stocks in the broader market index, falling 5% and 4.8%.

Utilities companies AES and First Energy declined 4.5% and 3.3% each.

— Sarah Min

The British pound, whose weakness had been weighing on stocks for much of Monday’s session, came off its lows after the Bank of England signaled an aggressive approach to controlling inflation.

In a statement released late-morning New York time, the central bank’s Monetary Policy Committee stopped short of an intermeeting interest rate hike. But it said it will “make a full assessment” of the pound’s fall “and act accordingly” at its next gathering.

“The MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2% target sustainably in the medium term, in line with its remit,” the statement said.

As the market digested the remarks, the pound rebounded to nearly $1.07 against the U.S. dollar after falling as low as $1.04 earlier. A stronger dollar can hit U.S. stocks as it raises costs for multinational companies.

—Jeff Cox

Shares of consumer discretionary and tech companies helped curtail losses in the S&P 500 in morning trading.

The consumer discretionary sector added 1.8% around 10:15 a.m., propelled by gains in Wynn Resorts and Las Vegas Sands. Shares of the casino names were up by double digits after news that China would allow group tours in Macau, easing Covid travel restrictions.

The tech sector also jumped 1.3%, driven by Enphase Energy and Ceridian. Shares of both companies were up more than 2%.

The S&P 500 ticked up by 0.5% in volatile trading.

­-Darla Mercado

Boston Federal Reserve President Susan Collins said Monday she will need to see concrete evidence that inflation is slowing before easing up on interest rate increases.

“Returning inflation to target will require further tightening of monetary policy,” Collins said in prepared remarks. “It will be important to see clear and convincing signs that inflation is falling, and I will continue to assess the range of incoming data, both quantitative and qualitative, as inputs to my future policy determinations.”

The Fed last week approved its third consecutive 0.75 percentage point interest rate hike in an effort to quell inflation running near its fastest pace since the early 1980s. Markets are expecting to see another hike of similar proportions at the next meeting in early November.

Echoing comments Sunday from Atlanta Fed President Raphael Bostic, Collins thinks the Fed can pursue its inflation-fighting policy without sinking the economy.

“There are reasons to be somewhat more optimistic about the ability to achieve the necessary slowing of demand without leading to a significant downturn, this time around,” she said. “Household and business balance sheets are considerably stronger than in previous tightening cycles, reducing the risk of a significant retrenchment in spending and investment as interest rates rise.”

Other Fed speakers on tap Monday include Bostic, Dallas Fed President Lorie Logan and Cleveland’s Loretta Mester.

—Jeff Cox

Wharton professor Jeremy Siegel criticized the Federal Reserve on Monday, saying that the central bank was “talking way too tough” on inflation now after being too slow to pivot to tighter policy earlier in the cycle.

“Honestly, I think Chairman Powell should offer the American people an apology for such poor monetary policy that he has pursued, and the Fed has pursued, over the past few years,” Siegel said.

Siegel said that he thinks the Fed is now at risk of causing a recession because it is not allowing the rate hikes it has already implemented to work their way into inflation data. The professor added that worker wages appear to be a “catch up” rather than a driver of inflation.

— Jesse Pound

Atlanta Federal Reserve President Raphael Bostic is holding out hope that the central bank can bring down runaway inflation without killing the economy.

In an interview Sunday with CBS’ “Face the Nation,” Bostic acknowledged that raising interest rates will slow the economy and likely cause job losses. But he doesn’t think that means the economy will sink into a deep recession.

“We need to have slow down. There’s no question about that,” he told host Margaret Brennan. “But I do think that we’re going to do all that we can at the Federal Reserve to avoid deep, deep pain. And I think there are some scenarios where that’s likely to happen.”

Fed Chairman Jerome Powell last month said he expects “some pain” to coincide with the central bank’s tightening efforts, which have included five interest rate hikes this year totaling 3 percentage points.

—Jeff Cox

CFRA’s Sam Stovall says the S&P 500 is ready for a relief rally after Friday’s moves pointed to oversold conditions.

“[Whenever] the S&P Composite 1500, which consists of the S&P 500, MidCap 400, and SmallCap 600 Indices, experienced a near total absence of its sub-industries trading above both their 10-week (50-day) and 40-week (200-day) moving averages, as was the case on Friday, June 17, the low for the decline had been set,” CFRA’s Sam Stovall wrote in a Monday note.

On Friday, none of the sub-industries were above their 10-week average and only 7% were higher than their 40-week average, or “exactly the same levels” as on June 17, according to the note.

“With the 10- and 40-week breadth indicators now again at levels that traditionally indicated a very oversold condition, CFRA thinks the S&P 500 and its constituent sectors and subindustries are ripe for a relief rally. The only question is whether the rally will have legs or get sold into,” Stovall wrote.

— Sarah Min

The big moves in the UK currency and bond markets may be reaching technical oversold levels, according to Peter Boockvar of Bleakley Advisory Group.

“The dramatic plunge in the pound and Gilts is unbelievable and to the point where at least the pound is likely a buy. The 14 day [Relative Strength Index] is down to just 15 and the 7 day is at just 8. The 14 day is matching the lowest since March 2020 and January 2016 before that which was a few months before the Brexit vote,” Boockvar wrote in a note on Monday.

The latest moves come after the British government announced a new mini-budget that includes tax cuts and additional spending, but those moves could prove to smart long-term, Boockvar said.

“I get the budget blowout of very expensive energy subsidies at the same time taxes will be cut across the board (preventing the corporate rate from going up, cutting the high top tax rate, reducing the stamp tax, eliminating the bonus cap for bankers, etc…) but these are all steps that will make the UK very long term competitive which would in turn invite a lot of investment,” Boockvar wrote.

— Jesse Pound

Here are the biggest calls on Wall Street on Monday.

• Planet Fitness — Shares jumped 4.2% in Monday premarket trading after Raymond James upgraded the fitness center company to strong buy from market perform, saying Planet Fitness is in great shape after a drawdown.
• Lyft — The ride-hailing stock declined 3.9% in the premarket after UBS downgraded Lyft to neutral from buy, saying it’s skeptical that Lyft can deliver growth.

Read more analyst calls here.

— Yun Li, Sarah Min

West Texas Intermediate futures fell to 77.21 on Monday, or its lowest level since early January. The WTI has advanced only 3.4% this year after closing at 75.21 on Dec 31, 2021.

Brent crude declined to below $85 a barrel on Monday. Brent futures for November hit a low of 84.51, or its lowest point since mid-January when it traded at 83.99.

— Sarah Min

The Cboe Volatility Index, known as the VIX, jumped nearly 3 points to 32.70 on Monday, hitting its highest level since mid-June. The VIX looks at prices of options on the S&P 500 to track the level of fear on Wall Street.

The jump in VIX came as the sell-off in the stock market is set to deepen with S&P 500 futures falling 0.8% in premarket trading.

— Yun Li

European stocks were choppy on Monday as investors continued to weigh the deteriorating economic outlook in the region.

The pan-European Stoxx 600 was down 0.2% by mid-morning in London, having recouped opening losses of roughly 0.6% before pulling back again. Utilities dropped 1.7% while tech stocks added 1.7%.

The British pound plunged to a record low on Monday, following last week’s announcement by the new U.K. government that it would implement tax cuts and investment incentives to boost growth.

– Elliot Smith

The sterling fell to a record low in Asia’s morning, briefly shedding more than 4% to $1.0382.

It later recovered slightly to $1.0513.

The dollar index — which trades against a basket of six currencies including the euro, yen and sterling — gained about 1%.

— Abigail Ng

Heading into the final week of trading for September, the Dow and S&P 500 are each down about 6% for the month, while the Nasdaq has lost 8%.

Both the Dow and S&P are now sitting 1.2% and 1.6%, respectively, above their lows from mid-June. The Nasdaq is 2.9% above its low.

— Tanaya Macheel

Investors are mentally preparing to see the S&P 500 test its low of the year, and that could mean a shorter-term bottom, according to Truist’s chief market strategist Keith Lerner.

“The increased probability of breaking the June S&P 500 price low may be what it takes to invoke even deeper fear,” Lerner said in a note. “Fear often leads to short-term bottoms. Importantly, as we saw in June, even if the market overshoots, snapbacks can be sharp and hard to time.”

He added that with extreme selling having already taken place and stocks being oversold, it’s not the time to press a negative view.

“In August, we had been advocating to reduce equities in the 4200-4300 range for the S&P 500 and a continued focus on increasing quality in portfolios,” he said. “In our view, the challenging macro environment is here to stay. This is not the time to be on offense. However, it doesn’t make sense to pile on to the negativity in the short term and become even more defensive after a large selloff has already occurred.”

— Tanaya Macheel

Stock futures opened little changed on Sunday evening after the major averages suffered steep losses in the previous week, as Federal Reserve policy, surging interest rates and foreign currency turmoil spooked investors.

Futures tied to the Dow Jones Industrial Average were down by just 40 points, while S&P 500 futures and Nasdaq 100 futures fell 0.1%. Futures tied to all three of the major averages quickly fell much lower soon after premarket trading began.

— Tanaya Macheel