Markets react as investors focus on Fed's target to bring down inflation

Markets react as investors focus on Fed’s target to bring down inflation

The S&P 500 finished lower on Monday, erasing earlier gains that brought the benchmark index to trade at its highest level on an intraday basis in nine months.

Whilst major debt and banking fears have dissipated, what comes next hinges on the Federal Reserve’s target for bringing down inflation.

Despite recent moves, worries persist over 2023′s narrow stock market rally, led by just a handful of tech names, and whether there could be a correction if market breadth fails to improve.

The S&P lost 0.2 per cent to finish at 4,273.79, while the Nasdaq Composite dipped 0.09 per cent to close at 13,229.43. The Dow Jones Industrial Average dropped 199.90 points, or 0.59 per cent, to end at 33,562.86.

Despite recent market rallies, US corporate earnings are forecast to drop 16 per cent this year according to Morgan Stanley analysts.

Owing to factors including “incremental growth risks” from the recent regional banks turmoil that tightened credit conditions, the bank’s equity strategists foresee slowing revenue growth and margin contraction amid an expected economic slowdown.

Morgan Stanley forecasts earnings per share for the S&P 500 to decline 16 per cent from a year ago to $185 in 2023. That is at the more bearish end of Wall Street forecasts in a Refinitiv poll and compares with a median estimate of $212.

In company news, Apple lost about 0.8 per cent, retreating from all-time highs touched earlier in the session. The iPhone maker on Monday unveiled its highly anticipated virtual reality headset in what is its most anticipated hardware product since Steve Jobs revealed the iPad in 2010. The gadget, called Vision Pro, combines virtual reality with augmented reality, which overlays digital images on top of the real world.

Intel shed 4.6 per cent as Apple revealed a new chip, while Nvidia pulled back on valuation concerns after its recent surge.

JPMorgan Chase and Goldman Sachs struggled amid news that regulators are considering upping capital requirements at large banks.

KKR & Co said on Monday it will buy industrial machinery maker Circor International in a $1.6 billion deal for $49 per share and take it private, as the private equity firm looks to double down on investments in the flow-control market. The price represents a ~55 per cent premium to Friday's close. Shares closed at $47.84 up 51 per cent.

Pharmaceutical company Mallinckrodt Plc is considering options including filing for bankruptcy again as a $200 million opioid settlement payment is due within weeks. Shares closed at $1.47 down over 40 per cent.

Overall, US sectors were mostly mixed. Communication Services was the best performer, whilst Industrials was the biggest laggard.

Futures

The SPI futures are pointing to a 0.6 per cent fall

Currency

One Australian dollar at 7:10 AM is buying 66.23 US cents.

Commodities

Iron ore futures are pointing to a 1.85 per cent gain.

Gold added 0.24 per cent. Silver fell 0.47 per cent. Copper added 1.09 per cent and oil gained 0.57 per cent.

Figures around the globe

Across the Atlantic, European markets closed lower. London’s FTSE fell 0.10 per cent, Frankfurt lost 0.54 per cent while Paris closed 0.96 per cent lower.

In Asian markets, Tokyo’s Nikkei gained 2.20 per cent, Hong Kong’s Hang Seng added 0.84 per cent while China’s Shanghai Composite closed 0.07 per cent higher.

Yesterday, the Australian sharemarket closed 1 per cent higher at 7216.

Ex-dividends

Oceania Healthc Ltd (ASX:OCA) is paying 1.0428 cents unfranked

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.

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