Markets continue to fall as autumn sets in

Markets continue to fall as autumn sets in

It was an uneasy start to fall for markets. (Photo by Spencer Platt/Getty Images)

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Key learning points

  • Markets back near summer lows
  • Interest rates significantly higher
  • Not Hedging Gold Effectively

With the official start of autumn yesterday, markets are largely back to where they were at the start of summer. In premarket activity, the S&P 500 is trading just above 3720. In June, the index hit a low of just under 3640. The Nasdaq is trading right at 11,400, just under 400 points above the June low. And the Dow looks poised to test its June low of 29,639. In the wake of recent weakness, Goldman Sachs released a report this morning that sets their year-end price target for the S&P 500 at 3600.

Meanwhile, bonds have also been rocked with 10-year bond yields now above 3.79%. Prices have been steadily rising and comments from Jerome Powell after the recently concluded FOMC meeting did not suggest that the higher march would end any time soon. After announcing a three-quarter point rate hike, Powell suggested more rate hikes are on the way and expects rates to be around 4.6% in a year. The rapid response of bonds to the Fed’s comments is not something markets are used to seeing. Often, after policy guidelines, markets are slow to adjust; however, the speed of this recent move has been fierce. At the same time, Powell acknowledged that continued increases could push unemployment to 4.4%, up from the current 3.7%, and that the chances of a soft landing are diminishing.

Rising rates are being felt in the housing market, where mortgage interest rates are now just below 6.3%. That is the highest since 2008 and the effects are starting to show. Sales of existing homes in August were 0.4% lower than in July. Potential home buyers are being priced out of the market as rates continue to rise, but home prices remain high.

Elsewhere, premarket gold is trading near its two-year low at just over $1650/ounce. What makes this interesting is that gold is normally seen as an inflation hedge. That prices have fallen so much despite rising inflation is a bit confusing. There had been a lot of discussion not too long ago about crypto assets becoming the new inflation hedge. However, as I’ve said many times, bitcoin trades much more like a stock confidence indicator. The value has fallen along with stocks, trading below $19,000 in premarket action.

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