After a rough day on Monday, when the S&P 500 SPX fell 3.00%, which was its worst single-day performance in almost two years, U.S. stock index futures are up early Tuesday. The S&P 500 fell 6% over three days, the Nasdaq Composite fell 8%, and the Russell 2000 fell 10%.
There are fears of a U.S. recession and that the Bank of Japan will raise interest rates and end the yen carry trade. Now the question is whether the market has seen its worst.
The head of cross-asset strategy at JPMorgan, Thomas Salopek, says the answer is no. As of now, he says, all the pieces for a market bottom are not in place.
First, he says it’s a “legitimate” pullback, which is shown by the fact that credit spreads are getting wider, the Treasury yield curve is getting steeper, and utilities XLU -2.64% are doing better than the market as a whole. Things that hurt other industries, like slower economic growth or falling prices that eat away at profit margins, help utilities and other defensive industries, which gain from lower interest rates. “The strong growth in the second quarter pointed to a slowing economy, while the defensive leadership in the third quarter points to growth risk,” says Salopek.
Salopek also doesn’t agree with the more positive view of labour market data that says the rise in the unemployment rate is due to more people looking for work. “If that were the case, unemployment would stop going up like it has,” he says, adding that Hurricane Beryl made the most recent number harder to understand.
He says that investors have to look at technical and risk-based signals since the next jobs report isn’t coming out for another month. These signals aren’t showing a bottoming signal.
One reason is that stocks don’t bottom when the VIX VIX -18.20% is at its highest point. However, the fear gauge did drop sharply in the early hours of Tuesday.
The slope of the 20-day moving average also does not offer reassurance, and he said getting above that is “a minimum starting point.” Also, the put/call ratio often hits highs at market lows, he says.
The Nasdaq has 34% of its stocks above their 100-day moving average. “We would look for this to get to 20% before watching it closely,” he says. In the same way, the percentage of stocks at four-week lows is nowhere near the 60% that it was during previous corrections. He also says that he will be paying close attention to the American Association of Individual Investors sentiment survey. This survey sent a strong message in the autumn of 2022, when sentiment was lower than it was at the height of the Covid crisis.
“When we look at the longer-term history of these bottoming signals during market corrections, we see that a number of the indicators mentioned show up together. Seeing these together helps us figure out when it’s best to get back in,” he says. He told them to stay underweight on stocks for now and wait for things to get bad enough to show that they are giving up.
The Market
Early Tuesday, stock index futures ES00 0.67% NQ00 0.73% are up, but not nearly enough to make up for Monday’s loss. The 10-year Treasury yield TMUBMUSD10Y 3.826% went up by 7 basis points. The prices of cryptocurrencies and crypto plays like MicroStrategy MSTR -9.60% and Coinbase Global COIN -7.32% went up. Performance of key assets
| Key asset performance | Last | 5d | 1m | YTD | 1y |
| S&P 500 | 5186.33 | -5.07% | -6.94% | 8.73% | 14.78% |
| Nasdaq Composite | 16,200.08 | -6.74% | -11.97% | 7.92% | 15.76% |
| 10-year Treasury | 3.849 | -29.00 | -45.20 | -3.19 | -18.41 |
| Gold | 2453.4 | 3.02% | 3.68% | 18.42% | 24.43% |
| Oil | 73.09 | -3.73% | -11.10% | 2.47% | -11.37% |
| Data: BourseWatch. Treasury yields change expressed in basis points | |||||
The commotion
Earnings were better than expected and revenue was slightly higher than expected for Uber Technologies UBER -0.86%. Shares went up 4% after the report. Caterpillar CAT -1.27%, a company that makes construction equipment, also beat earnings estimates.
Palantir Technologies shares PLTR -2.63% went up after the company made more money than expected.
Lucid Group stock LCID -3.85% went up after the company that makes electric cars got a $1.5 billion commitment from Saudi Arabia’s sovereign wealth fund.
At the end of the day, Super Micro Computer SMCI -2.53% and Airbnb ABNB -2.28% will report their findings. There aren’t many economic events coming up, but U.S. trade data and an auction of $58 billion worth of 3-year notes stand out.
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