FX-guidance Blog Investments The Dow Jones rebounded rather than reversed. Not enough capitulation with a total sellout based on fear

The Dow Jones rebounded rather than reversed. Not enough capitulation with a total sellout based on fear

4 min 38

The long weekend clearly benefited investors, who suffered the biggest weekly loss on the broad market index since March 2020 the day before.

Dow Jones surfaced from under 30,000

Rethinking the aggressive policy of the Federal Reserve and the growing chances of a recession in the United States economy, market participants began to generate a rebound in all major stock indexes. 27 components of the Dow Jones and 441 shares of the S&P 500 ended trading higher in capitalization.

Jerome Powell hopes to curb inflation and save the Dow Jones. Photo: NewYorker.com

Shares of UnitedHealth (UNH) +6.25%, Chevron (CVX) +4.18% and Merck (MRK) +4.03% helped the Dow Jones not only rise by 2.15% in trading, but also close significantly above the psychological level of 30,000. Demand for Big Tech was realized in the shares of Alphabet (GOOG) +3.85%, Apple (AAPL) +3.28%, Microsoft (MSFT) +2.46% and Amazon (AMZN) +2 .32%.

Elon Musk clarified about reductions in Tesla

Tesla (TSLA) led the S&P 500 +2.45% and Nasdaq +2.51%. Elon Musk has deciphered his previous claims regarding a 10% reduction in the car company’s staff over the course of three months. He added that against the backdrop of these layoffs Tesla will continue to hire employees on an hourly schedule.

As a result, this combination will lead to an overall reduction of no more than 3.5%. Moreover, in a year, Musk expects that the number of employees in TSLA will be greater than at the moment. Despite a solid 9.35% intraday gain, Tesla shares are more than 30% away from their highs posted earlier this year.

Demand returned to oil and gas

Oil quotes, which have been demonstrating local stability since yesterday, returned investment confidence to the oil sector. West Texas benchmark WTI rose 1.5 percent to nearly $110 a barrel. North Sea Brent, which added less than a percent, was a few cents short of occupying the $115 price tag.

Against this backdrop, papers of oil and gas companies became the best sector on Tuesday. Shares of the largest US oil company by capitalization ExxonMobil (XOM) became more expensive immediately by 6.22%. The upgrade from Credit Suisse also arrived in time.

Focus on the former company of John D. Rockefeller

The Swiss bank has raised its recommendation on the Texas company to overweight with an upside of 45% from current levels based on XOM’s divergent strategy to benefit from the current rise in black gold prices.

Diamondback Energy (FANG) led the way with an updated capital return program to at least three-quarters of free cash flow, gaining more than 8%. Nearly 6% up on ConocoPhillips (COP) shares. Oilfield service giants Schlumberger (SLB) and Halliburton (HLB) have similar figures.

Jerome Powell goes to Congress

On Wednesday and Thursday, Fed Chairman Jerome Powell will deliver an address to Congress, during which he is likely to come under pressure from US lawmakers amid the actions of his department to combat inflation. Fears in the public about the immediate prospects for the US economy are constantly growing.

Economists at Bank of America see a 40% chance of a recession. At the same time, they clarify that the Fed is far behind schedule, and is now playing dangerous catch-up. The baseline scenario of the German Deutsche Bank is more categorical and assumes the start of a recession as early as the third quarter of 2023, while strategists Goldman Sachs consider the probability of its occurrence at 30%.

Stock Market Outlook Remains Bearish

All of the above makes the US stock market more and more vulnerable, and allows it to fall further even despite the 22% break from the highs that has already taken place.

Fears of a slowdown in global economic growth will gradually replace inflation as the main focus of investors’ attention, Credit Suisse analysts say. This trend is already beginning to manifest itself through the deterioration of the situation with commodities and especially industrial metals.

That is why investment strategists CFRA Research sees in the local movement of the market not a reversal, but a rebound. In their opinion, the market lacks the main detail for a complete picture – the complete capitulation of positions with a total sale based on fear for what is happening. They expect the S&P 500 to drop to 3200 or 30% off the highs before any recovery can be expected.

On the subject: Comparing the length and width of previous bear markets since 1973

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