Investors face a growing list of risks heading into the fourth quarter that just keeps getting bigger — from rising interest rates to a possible revival of inflation and gridlock in Washington that may become headwinds for economic growth.
A day after the Fed’s policy update on Wednesday, which underscored a message of higher-for-longer rates, strategists Jay Barry, Jason Hunter and others at JPMorgan Chase & Co. JPM, -0.96%, the biggest U.S. bank, said their bearish equity view was “gaining material traction” and that September through mid-October “also happens to be the most bearish time of the year for risky markets from a cyclical perspective.
On Friday, all three major U.S. stock indexes DJIA SPX COMP ended lower for the fourth straight day, producing weekly losses which shrank each of their year-to-date gains. Meanwhile, Treasury yields finished not far from their highest levels since 2006-2011 as fed funds futures traders priced in a 40.7% likelihood of further Fed tightening by year-end.
However, not even Fed Chairman Jerome Powell is entirely sure the U.S. can achieve a soft landing and avoid a recession, even if that’s the outcome policy makers are hoping for, judging by their projections for growth, unemployment, and inflation through 2026. The central bank’s favorite inflation gauge, the personal consumption expenditures price index, is set to be released on Friday and is the data highlight of the week ahead.
Michael Landsberg, chief investment officer of Landsberg Bennett Private Wealth Management in Punta Gorda, Fla., which manages $1 billion in assets, said that there are “big question marks about earnings season, which begins in mid-October” and “we need earnings to grow meaningfully in order to have any kind of noticeable move higher in markets.”
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