Why the Markets Are in for a Spooky Halloween
Markets experience a Halloween scare as borrowing needs decline, causing soaring stock prices Meanwhile, CVS and Walgreens staff strike while Apple reveals its lightning-fast iMac and MacBook Pro models
This story, initially published in CNN Business Before the Bell newsletter, can be accessed by subscribing. An audio version of the newsletter is also available through the provided link. On Monday, following a drop of 10% from its July peak, the S&P 500 index rebounded impressively, showing a significant market surge.
However, the optimism of Mondays may not last long as traders brace themselves for a multitude of potentially alarming market surprises during this Halloween week. Wall Street shows clear signs of being unsettled, with the S&P 500 index still experiencing a decline of approximately 2.9% for the month of October. This persistent downward trend puts it on track to record its third consecutive negative month, marking the longest losing streak since the onset of the 2020 pandemic.
The Dow is poised to finish the month down 1.6%, while the Nasdaq Composite is down 2.7%.
Despite the market rally on Monday, CNN's Fear and Greed Index, which monitors seven indicators of market sentiment in the United States, still stayed in the "fear" zone.
Heres whats causing the market fears:
High bond yields
Rising yields have led to one of the most unfavorable periods for bond market performance ever, causing pressure on equity markets. Currently, the 10-year Treasury yields are nearing 5%, a level not seen since 2007, prior to the global financial crisis.
Rob Almeida of MFS Investment Management stated that we are currently experiencing a paradigm shift, despite rates recently declining slightly from their peak. He believes that it is unlikely for yields to revert back to the low levels seen before the pandemic.
For US consumers, a higher 10-year Treasury yield brings financial hardship as it serves as a benchmark for various forms of consumer borrowing. This leads to increased costs for car loans, credit card rates, student debt, and mortgage rates.
"Yields have soared higher, resembling an evil witch riding her broom to the moon," stated Jason Pride, Chief of Investment Strategy & Research at Glenmede.
The surge in Treasury yields is placing strain on the equity markets. In addition, Pride pointed out that "elevated yields pose a constraint on businesses since the returns from new ventures and expansions need to be substantial enough to offset the heightened funding expenses."
The Fed
The Federal Reserve will announce its next interest rate decision Wednesday, Nov 1.
Inflation is stabilizing, with annual consumer price growth decreasing to 3.7% from last year's high of 9.1%. However, the labor market continues to show resilience. Most investors do not expect the Fed to increase rates this week. However, the possibility of future rate hikes remains open as long as the labor market cools significantly and inflation rates return to the Fed's 2% target. This prospect is worrisome for investors.
Erik Weisman, chief economist at MFS Investment Management, mentioned that the Fed is currently on hold due to mixed economic data. As a result, it is unlikely that investors will receive any satisfactory information this week.
Weisman stated, "Although the market would be pleased to receive updates on the anticipated timing and extent of future interest rate reductions, as well as clarifications on the conclusion of quantitative tightening, this meeting is unlikely to shed much light on these matters."
Geopolitical strifeÂ
The Israel-Hamas war, which began in early October, initially rattled global financial markets, sending stocks tumbling, the Israeli shekel sliding and oil prices climbing.
Investors continue to be cautious despite the apparent easing of immediate concerns. The prolonged duration of a war could potentially lead to increased prices and negatively impact the global economy, creating further concerns. According to Seema Shah, the chief global strategist at Principal Asset Management, while the direct market impacts of geopolitics tend to be short-lived, the indirect effects such as inflation and economic growth can have a more lasting impact.
The ongoing conflict between Russia and Ukraine, coupled with escalating tensions between the US and China, is causing apprehension among investors. On Monday, oil prices experienced a decline, prompting analysts at LPL Research to warn of the high risk of a surge in oil prices due to the current perilous geopolitical situation.
JPMorgan Chase CEO Jamie Dimon's recent warnings during the company's earnings call are echoed in the note, emphasizing that the current period may be one of the most perilous times the world has experienced in decades.
Investors will closely analyze Apple's third-quarter earnings report on Thursday to gain insights into the future prospects of the Big Tech industry. This is particularly important considering the varied performance of tech stocks in this quarter.
In contrast, Amazon emerged as a significant winner. The leading e-commerce company announced a revenue of $143.1 billion for the September quarter, surpassing analysts' predictions and demonstrating a 13% growth from the previous year.
The company reported quarterly profits of $9.9 billion, also beating estimates.
But others werent so lucky.
Last week, Meta's shares declined following the Facebook parent company's announcement of soft advertising revenue for the quarter. Despite exceeding expectations with a substantial 23% year-over-year growth in quarterly revenue, concerns arose on Wall Street regarding the loss of $3.7 billion in Meta's Reality Labs division.
In a similar vein, Google-parent Alphabet experienced a significant drop in shares after falling short in its cloud business. This news resulted in Alphabet's largest stock decline since March 2020.
CVS and Walgreens pharmacy staff begin 3-day walkout
Largest drugstore chains in the United States experienced a fresh wave of walkouts nationwide on Monday as employees rallied together to demand improvements in their working conditions. These harsh conditions pose challenges for safely filling prescriptions, potentially compromising the well-being of customers.
Walgreens and CVS employees are predominantly not part of unions, making it challenging to organize a significant walkout. CNN has confirmed with staff and organizers in multiple states that walkouts have commenced and will continue until November 1. However, the extent of participation in this action remains uncertain.
In September and early October, workers at Walgreens and CVS have previously initiated walkouts in Arizona, Washington, Massachusetts, and Oregon. These actions temporarily closed a few pharmacies and resulted in decreased business at several others. Walgreens stated to CNN that the overall impact has been minimal.
Shane Jerominski, a former Walgreens pharmacist who now works independently in Southern California, is one of the organizers of the walkouts. He mentioned to CNN on Monday that the organizers have been receiving numerous calls regarding closed pharmacies, which has overwhelmed them.
According to Jerominski, pharmacy staff had previously been concerned about potential retaliation from their superiors and corporate management during previous walkouts. However, he stated that there have been no reported acts of retaliation from the leadership, which has encouraged more staff members to join the movement.
Jerominski informed CNN that a minimum of 25 stores have been closed.
According to Fraser Engerman, a spokesperson for Walgreens, only two stores closed on Monday and the total number of pharmacists who went on strike nationwide did not exceed 12. He did not provide immediate clarification on whether this figure included pharmacy staff.
Many employees, worried about potential reprisals from the company, are choosing to call in sick instead of participating in the walkout. However, these absences will not be considered official walkouts by Walgreens. Jerominski predicts that in the following three days, momentum will grow, leading to a planned demonstration outside Walgreens headquarters in Deerfield, a suburb of Chicago, on Wednesday.
Jerominski additionally stated that a GoFundMe page, originally established to support the unionization initiatives among pharmacy employees, had amassed over $60,000. This fund was subsequently utilized as an emergency relief fund to assist workers who required financial assistance in order to take part in the walkout.
Apple unveils its fastest iMac and MacBook Pro models yet
Apple's MacBook Pro lineup and the vibrant iMacs have undergone significant speed enhancements.
During a live-streamed event on Monday night, the company unveiled its latest generation of custom-designed processors: the M3, M3 Pro, and M3 Pro Max. Additionally, they introduced a range of new computers.
The events tagline "scary fast" was a clear nod to the introduction of the next-generation silicon chip series, coinciding with the Halloween holiday on Tuesday. At the start of the prerecorded presentation, CEO Tim Cook made his entrance dressed in all black in a dimly lit area at Apple's headquarters in Cupertino, California, with an apparent smoke machine positioned in front of him.
While the unveiling of a new processor may not appear glamorous, it plays a vital role in Apple's latest products by enabling faster speeds and enhanced capabilities. For instance, Apple claims that the M3 speeds are now up to 2.5 times faster than those of the previous M1 chip family, with a 50% increase in core processing performance. These chips incorporate cutting-edge 3 nanometer technology, capable of supporting advanced graphics and artificial intelligence.
"It will bring a whole new level of graphics to the Mac," an Apple executive said during the event. "They are the most advanced chips ever built for a personal computer."
