NASDAQ Composite, S&P 500 Index Struggle to Find Footing Amid Recession Warnings

The benchmark S&P 500 Index and tech-driven NASDAQ Composite Index are trading lower at the cash market opening but well off the lows reached during the futures market session. There were no major news events overnight so the price action is likely being fueled by a combination of short-covering and bargain basement buying.

At 14:31 GMT, the S&P 500 Index is trading 3937.25, down 7.75%. The NASDAQ Composite Index is at 11518.25, down 47.75 or -0.41% and the Dow Jones Industrial Average is trading 33619, down 14 or -0.04%.

Without Fed members and major economic reports to guide them, investors don’t have much information to base their decisions so we suspect the price action will be mostly governed by technical factors unless there is breaking news.

We do know from the earlier session that worries about a looming recession are offsetting optimism surrounding the news of additional easing of COVID-related restrictions in China.

Warnings of Looming Recession

Top banking officials at JPMorgan Chase & Co, Goldman Sachs Group and Bank of America said on Tuesday that inflation would erode consumer spending power enough to trigger a mild to more pronounced recession in 2023.

Goldman Sachs CEO David Solomon added, “Economic growth is slowing. When I talk to our clients, they sound extremely cautious.”

China Announces Sweeping Changes in COVID-19 Policy

China on Wednesday announced the most sweeping changes to its tough anti-COVID regime, including allowing infected people with mild or no symptoms to quarantine at home and dropping testing for domestic traveling, following protests against COVID controls.

The news is good because it indicates that China may have turned a corner, however, it still has work to do before we see demand in the country grow enough to prevent a global recession.

Tech-Relates Stocks in the New

Apple Inc is down after Morgan Stanley cut its estimates for the firm’s December-quarter iPhone shipment after chipmaker Foxconn flagged production delay.

Tesla Inc slumped 2.8% and was on track to fall for a third straight session over production loss worries at its Shanghai plant.

Carvana Co tumbled 25.5% after Wedbush downgraded the used-car retailer’s stock to “underperform” from “neutral” and pruned its price target to $1.00.

Short-Term Outlook

Given the lack for fresh economic news, we’re not expecting to see much meaningful upside action unless it’s driven by technically oversold conditions.

Volume is extremely low with many of the major players already curtailing activity ahead of next Tuesday’s consumer inflation report and Wednesday’s Fed announcement. That being said, the market is probably ripe for a volatile two-sided trade.

There was a report today that showed labor costs rose while production fell. This indicates inflation is still not flat-lining or trending lower. However, the news didn’t seem to rattle investors too much.

Furthermore, Treasury yields are ticking lower underpinning stock prices. Given the early price action, I think it’s safe to say that the direction of Treasury yields will determine how the stock market performs.