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Wall St eyes record open in a big week for Federal Reserve

By Devik Jain and Bansari Mayur Kamdar

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Wall St eyes record open in a big week for Federal Reserve
© Reuters. FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., October 27, 2021. REUTERS/Brendan McDermid

By Devik Jain and Bansari Mayur Kamdar

(Reuters) -Wall Street’s main indexes were set for record open on Monday, led by gains in Tesla (NASDAQ:) and energy stocks at the start of a week packed with economic data as well as the Federal Reserve’s potential move to slow down bond purchases.

Tesla Inc rose 1.5% in premarket trading, pointing to a record open after it notched a trillion dollars in market capitalization last week.

“With Tesla, it started off as EV-based but I think it’s all momentum based now. You buy a stock that’s working for you and then hope that it will continue to work for you, as simple as that,” said Robert Pavlik, senior portfolio manager at Dakota Wealth in Fairfield, Connecticut.

Other mega-cap technology stocks Google-owner Alphabet (NASDAQ:) Inc, Meta Platforms, formerly Facebook Inc (NASDAQ:), Microsoft Corp (NASDAQ:) and Amazon.com (NASDAQ:) edged higher.

Exxon Mobil (NYSE:) and Chevron Corp (NYSE:) added 0.8% and 0.4%, as JP Morgan raised its price target on the oil majors following their strong quarterly results last week.

Oil firms also rose tracking crude prices.[O/R]

Major Wall Street lenders including Bank of America Corp (NYSE:), Wells Fargo (NYSE:) & Co, Morgan Stanley (NYSE:), Goldman Sachs (NYSE:) and JPMorgan Chase & Co (NYSE:) gained between 0.3% and 0.7%.

The broader financials sector slipped last week, breaking a three-week winning streak.

A largely upbeat earnings season has helped investors look past a mixed-macro economic picture, with the benchmark S&P 500 and the tech-heavy Nasdaq recording their best monthly performance since November 2020 in October.

Focus is now on the Fed’s policy meeting on Nov. 2-3, where the central bank is expected to announce the tapering of its $120 billion monthly bond buying program by $15 billion.

“There’s a bit of tentativeness as we approach the Fed meeting, but that’s taking a backseat to the earnings news. It is all about earnings coming in much better than expected, and despite some disappointments in guidance, that’s what the Street is focused on,” Pavlik said.

With recent U.S. data showing inflation pressures building, the market has also started pricing in rate hikes next year. November and December tend to be among the strongest months for stocks and any hawkish tilt in the Fed’s message could catch equities by surprise.

Goldman Sachs has brought forward its forecast by a year to July 2022 for the first post-pandemic U.S. interest rate hike, as the investment bank expects inflation to remain elevated.

At 8:34 a.m. ET, were up 142 points, or 0.4%, were up 15.5 points, or 0.34%, and were up 39.25 points, or 0.25%.

On the economic data front, readings on October factory activity data from IHS Markit and ISM are due after market open, followed by non-farm payrolls on Friday.

Harley-Davidson Inc (NYSE:) jumped 8.2% after the European Union removed retaliatory tariffs on U.S. products including whiskey, power boats and company’s motorcycles.

gained 3.5% after J.P. Morgan upgraded the Sharpie pen maker’s stock to “overweight” from “neutral”.

Stock Markets

Morgan Stanley: bear market rally to continue

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One of Wall Street’s best-known bears, Michael Wilson, thinks the S&P 500 will rise another 7% before turning down, so the bear market rally will continue for now, writes Market Watch.

After the Dow Jones, S&P 500 and Nasdaq Composite joined their strongest weekly gains since at least May last Friday, Wilson, who is chief strategist and head of U.S. equity markets at Morgan Stanley (NYSE:MS), told clients that there could be another 5% to 7% before the downward trajectory of U.S. stocks resumes during the latest bear market recovery.

Wilson has held a bearish view of the stock market for about 2 years and correctly predicted a sell-off this year.

Wilson explained in a research note sent out to clients on Monday that a pullback in the 38-50% drop in the stock market this year “would not seem like something unnatural, not consistent with the previous bear market rally.”

While growth concerns have triggered a sell-off in commodities and lowered inflation expectations, the fact that the U.S. economy is already slowing and heading toward recession means that any market rally is likely to be short-lived, and U.S. stocks are likely to eventually fall.

Wilson mentioned in the note that the bear market is not over yet, although it may appear otherwise in the next few weeks as the market takes the rate cut as a sign that the Fed can still manage a “soft landing” and prevent a meaningful revision to earnings forecasts.

U.S. stocks rose last week as investors now hope the slowing economy and falling commodity prices may inspire the Fed to raise interest rates less sharply. Federal funds futures, a derivative used by investors to bet on the pace of the Fed’s monetary policy changes, estimate with a high probability that the Fed will be forced to start cutting interest rates again as soon as next summer.

They also consider the lower peak in the federal funds rate: it will peak around 3.5% at the end of 2022 instead of 3.75% just a couple of weeks ago. Wilson also pointed out the drop in Treasury yields: the 10-year Treasury bond yield went from 3.230% to a low of 3.07% on Friday before rebonding again on Monday.

Wilson expects the S&P 500 index to fall to around 3,400 points if the U.S. Federal Reserve manages to get a “soft landing” for the economy — which Fed Chairman Jerome Powell said last week would be “a very difficult thing to do.”

Wilson expects that if the U.S. economy plunges into recession, the S&P 500 index will fall to around 3,000 points. In any case, Wilson believes that U.S. stocks are still highly valued because the risk premium — that is, the measure of compensation that investors receive for the extra risk of owning stocks instead of bonds — remains about 300 basis points higher than the 10-year Treasury bond yield, which is considered a “risk-free rate.” 



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Stock Markets

Easing chip shortages to help Volkswagen in H2 – CEO

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© Reuters. FILE PHOTO: Volkswagen logo is pictured at the 2022 New York International Auto Show, in Manhattan, New York City, U.S., April 13, 2022. REUTERS/Brendan McDermid/File Photo

BERLIN (Reuters) – Volkswagen (ETR:VOWG_p) sees a strong second half of 2022 and expects progress in catching up with rival Tesla (NASDAQ:TSLA) as easing chip shortages start to offset supply chain bottlenecks and rising costs, the carmaker’s CEO said on Tuesday.

“We are earning more than ever,” Chief Executive Herbert Diess said at a works meeting, adding Volkswagen is ramping up electric vehicle volumes in its biggest markets in Germany and China thanks to easing semiconductor shortages.

This should allow the carmaker to narrow the Volkswagen-Tesla gap this year and meet its goal of becoming market leader by 2025 if it seizes the moment while the U.S. electric car maker burns cash on large investments, the CEO said.

“Elon (Musk) has to ramp up two highly complex factories in Austin and Gruenheide at the same time – as well as expand production in Shanghai. That’s going to take strength out of him,” Diess said.

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Stock Markets

Reliance Chairman Mukesh Ambani steps down as director of telecom arm

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© Reuters. FILE PHOTO: Mukesh Ambani, Chairman and Managing Director of Reliance Industries, arrives to address the company’s annual general meeting in Mumbai, India July 5, 2018. REUTERS/Francis Mascarenhas

BENGALURU (Reuters) – Reliance Industries Chairman Mukesh Ambani has stepped down as director of Reliance Jio Infocomm Ltd, the conglomerate’s telecom arm said on Tuesday.

Reliance Jio said https://refini.tv/3Nrs773 it has appointed Mukesh’s son and non-executive director Akash Ambani as the chairman of its board. Akash has been involved with the telecom unit since its launch in late 2016, where he started as a director.

India’s telecoms sector had been upended after the entry of Jio, which triggered a price war that forced some rivals out of the market and turned profits into losses.

Jio, which started out offering mobile teleservices, has been aggressively investing in services like internet broadband and forging ties with handset makers to launch low-cost smartphones and providing 5G services.

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