Stocks could continue skittish trading until interest rate move calms down

Published Fri, Sep 23 20225:19 PM EDT

Patti Domm @in/patti-domm-9224884/@pattidomm

It's historically the worst time of year for stocks, and that is more than true this year, with wild swings expected to continue until interest rates calm down. The S & P 500 temporarily broke below its June closing low of 3,666 Friday but rose back above it as bond yields slipped back off highs. Strategists said if the S & P goes below the low again and stays there, it could signal a next range of targets are in sight at 3,400 or below. The S & P 500, Dow and Nasdaq were all down sharply for the week. The S & P was down 4.6%, ending the week at 3,693. It was also on track for a 6.6% monthly loss in September, traditionally the worst month of the year for stocks. "The only bull market this year has been in cash. The one thing we're going to be looking for is this positive stock/bond correlation to take a rest," said Julian Emanuel, head of U.S. equity, derivative and quantitative research at Evercore. Bond yields move opposite price. As stocks tumbled in the past week, Treasury yields kept rising , with the 10-year reaching an 11-year high of 3.82% Friday before slipping back below 3.7%. The 2-year Treasury yield was at 4.19% late Friday, after rising to a 15-year high of 4.26%. There is some economic data to watch in the week ahead, particularly Friday's release of personal consumption expenditures data, which includes the Fed's favorite inflation measure. "For next week, I think it's PCE on Friday and long run inflation expectations in University of Michigan consumer sentiment. Those are the two big market movers," said Michael Arone, chief investment strategist at State Street Global Advisors. "Prior to that, we need to see some stability in interest rates. The 2-year and the 10-year need to stop accelerating aggressively in order to get some firmer footing. Interest rates have been rising pretty aggressively this week, and that's been hurting risk assets across the board," he said. Besides PCE, there is durable goods and new home sales Tuesday, and consumer sentiment Friday. There are also a host of Fed speakers, including Fed Chairman Jerome Powell who speaks at a Banque de France conference Tuesday and a St. Louis Fed community bank event Wednesday. Fed Vice Chair Lael Brainard , St. Louis Fed President James Bullard , San Francisco Fed President Mary Daly and Fed Governor Michelle Bowman are among the speakers. Fed speak will be watched closely after the stock market tone became far more negative Wednesday, following the Federal Reserve's anticipated three-quarters point rate hike . But it also presented a forecast showing it could raise rates as high as 4.6% by early next year, and unemployment could rise by 0.7% next year. Investors read the Fed's message to mean it could tolerate a recession if needed, as it raises rates to fight inflation. That forecast sent stocks lower and Treasury yields even higher. Other global central banks joined the Fed in raising rates, and interest rates around the world rose in tandem. "The first thing we want to see is bond yields stabilize in the U.S.," said Emanuel. "While it's not going to create the buying opportunity for stocks in the exact present because you're still in the process of discounting the recession that the Fed chair told you is coming, it will eventually." Technically speaking The S & P 500 could test the June lows in the next couple of sessions, and some technical strategists see a much lower low before the market bounces. "I guess you've got mega caps rolling over. The trend is bearish. You've got poor seasonals," said Ari Wald, head of technical analysis at Oppenheimer. "I think you get a lower low to 3,500. ... What I'm going to look for is a diverging low and some of the indicators are still coming in." Scott Redler, partner with T3Live.com, said market pros are not going to count the quick drop below the S & P low June close as a clear retest, and it is likely to make a move on that and the intraday low. If those levels break, the S & P could touch 3,385 before the selling is over, he said. Week ahead calendar Monday 10:00 a.m. Boston Fed President Susan Collins 12:00 p.m. Atlanta Fed President Raphael Bostic 12:30 p.m. Dallas Fed President Lorie Logan 4:00 p.m. Cleveland Fed President Loretta Mester Tuesday Earnings: Jabil, Cracker Barrel, United Natural Foods , Blackberry, Cal-Maine Foods 6:15 a.m. Chicago Fed President Charles Evans 7:30 a.m. Fed Chairman Jerome Powell speaks at Banque de France conference 8:30 a.m. Durable goods 9:00 a.m. S & P/Case-Shiller home prices 9:00 a.m. FHFA home prices 9:55 a.m. St. Louis Fed President James Bullard 10:00 a.m. New home sales 10:00 a.m. Consumer confidence 8:35 p.m. San Francisco Fed President Mary Daly Wednesday Earnings: Thor Industries, Cintas, Paychex, Vail Resorts , MillerKnoll 8:30 a.m. Advance economic indicators 8:35 a.m. Atlanta Fed's Bostic 10:00 a.m. Pending home sales 10:10 a.m. St. Louis Fed's Bullard 10:15 a.m. Fed's Powell opening comments at St. Louis Fed community bank conference 11:00 a.m. Fed Governor Michelle Bowman 2:00 p.m. Chicago Fed's Evans 2:25 p.m. Kansas City Fed President Esther George Thursday Earnings: Nike, Bed Bath & Beyond , Micron, Rite Aid, CarMax 8:30 a.m. Initial claims 8:30 a.m. Real GDP (Q2 third reading) 9:30 a.m. St. Louis Fed's Bullard 9:30 a.m. Cleveland Fed's Mester 4:45 p.m. San Francisco Fed's Daly Friday 8:30 a.m. Richmond Fed President Thomas Barkin 8:30 a.m. Personal consumption expenditures 8:30 a.m. PCE deflator inflation data 9:00 a.m. Fed Vice Chair Lael Brainard 9:45 a.m. Chicago PMI 10:00 a.m. Consumer sentiment 11:00 a.m. Fed Governor Bowman 12:30 p.m. Richmond Fed's Barkin 4:15 p.m. New York Fed President John Williams