That has investors are looking for sectors that may have historically proven to be resilient during a downturn. Ultimately, as the Fed becomes more and more aggressive, recession becomes a bigger worry than inflation, and bond buyers begin outnumbering bond sellers-that is, the bond market blinks," Paulsen added.įears about a potential recession are growing, with Goldman Sachs CEO David Solomon being the latest high profile figure to warn about the possibility. "Each time the Fed further tightens monetary policy, recession fears are elevated relative to inflation fears. With growing concern about a recession in 2023, it may be close to a ceiling, Paulsen said. The 10-year Treasury yield has traded above 4% in recent days, reaching its highest levels in more than a decade. But at some point, longer-term bonds may simply stop rising and refuse to follow the Fed's lead," Paulsen wrote in a note to clients on Tuesday. The Fed may soon attempt to raise the funds rate to 4%, 4.5%, or even 5%. "There is considerable precedent in past tightening cycles for the Fed to be shut down by the bond market "blinking" first. The Fed is widely expected to hike by another three-quarters of a percentage point next month, but the central bank may be reaching its limit for dictating long-term interest rates, according to The Leuthold Group's Jim Paulsen.
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The Nasdaq briefly turned negative at two different points during the session.Įlsewhere, Salesforce rose 4.3% after activist Starboard Value LP revealed a stake in the software giant, making the stock the top performer in the Dow. The averages hit their highest level in early trading, with the Dow gaining more than 600 points, but lost ground as U.S. Trading was choppy on Tuesday, as many investors seem to lack confidence in the rally.
"Next year, however, we expect a more challenging earnings backdrop relative to current expectations," he added. As such, we see equities primed for upside into year-end on resilient 2H22 earnings, low equity positioning, very negative sentiment and given more reasonable valuation," Dubravko Lakos-Bujas, JPMorgan's head of global macro research, said in a note to clients. Equity valuation will likely remain tied to global central bank rhetoric and rates, which is turning incrementally less negative. "3Q and 4Q earnings should confirm fundamentals remain anchored in resilient labor market and Covid reopening.
markets to their lows of the year in recent weeks, but the solid start to earnings season may signal that the economy is currently in better shape than feared. Lockheed Martin also rose 8.7% after its earnings per share topped estimates.įears of a recession and overly aggressive central banks have helped push the U.S.
That report continued a strong stretch of bank earnings, including beats from Bank of America and Bank of New York Mellon on Monday, and the financial sector as a whole outperformed on Tuesday. Goldman Sachs rose 2.3% to boost the Dow after strong trading results helped the investment bank beat quarterly earnings and revenue expectations.
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