But it’s not the only potential catalyst for another market sell-off, as uncertainty continues to dominate.
See here: FedEx’s stock is almost 20% lower in premarket trading on Friday after the company withdrew the financial guidance it issued just a few months ago and said it would move to slash costs as demand for packages fell across the globe. The company is seen as a bellwether for the economy since has insight into shipments across a wide range of industries.
1. The US Federal Reserve meets next week. Persistent inflation, fears of recession and slowing economic growth have rattled markets across the globe. Now as major central banks institute aggressive rounds of monetary policy tightening to battle inflation, investors fear that they may go too far.
On Wednesday, the US Federal Reserve will announce its decision on its next round of rate hikes. Fed Chair Jerome Powell, in the face of a very tight labor market and high inflation, has delivered a hawkish message to investors — indicating that the central bank will likely increase interest rates by another 75 basis points for the third time in a row.
If the Fed remains aggressive at the expense of economic growth we can expect months of cooling employment figures, especially wage data, and widening credit spreads that make it more expensive for companies to borrow.
That means higher bond yields, lower stock prices and less of a chance at a soft landing.
2. Earnings season is coming. Another risk for Wall Street is softer corporate earnings in October.
Charles Schwab analysts are forecasting weaker earnings growth through 2022 compared to last year.
Global commodity flows, including critical supplies of fossil fuels, food, and fertilizer continue to be hampered regardless of which side is winning the fight. A new report by S&P Global Ratings estimates that war-related global energy and food shocks will last through at least 2024. Those shocks will continue to weigh on GDP and fiscal performance.
US mortgage rates jump to highest level in 14 years
Mortgage rates in the US jumped past 6% this week, reaching their highest level since the fall of 2008.
Stubbornly high inflation is responsible for pushing rates up, noted Sam Khater, Freddie Mac’s chief economist.
Rates had fallen in July and early August as recession fears took hold. But comments from Federal Reserve Chairman Jerome Powell and recent economic data have pulled investors’ attention back to the central bank’s fight against inflation, pushing rates higher.
There is a silver lining for those looking to buy. As mortgage rates rise and home prices remain high, home sales are slowing. Prices could also soon drop.
With borrowing costs expected to continue rising in the next few months, it is becoming increasingly clear that home prices need to decline to bring balance back to housing markets.
“Many sellers are recognizing the shift in market conditions and are responding by cutting their asking prices,” said George Ratiu, manager of economic research at Realtor.com. “These changes are coinciding with the time of the year when buyers have historically found the best market conditions to find a bargain.”
China and Russia’s growing economic ties
Chinese leader Xi Jinping and his Russian counterpart, Vladimir Putin, met face-to-face on Thursday for the first time since Moscow sent troops into Ukraine earlier this year. Investors watched the meeting closely looking for clues into the status of their economic relationship.
Putin emphasized the two nations’ deepening economic ties at their meeting, noting bilateral trade exceeded $140 billion last year. “I am convinced that by the end of the year we will reach new record levels, and in the near future,” he said.
Beijing has carefully avoided violating Western sanctions or providing direct military support to Moscow, but Chinese companies are taking advantage of the exodus of Western brands from Russia.
A first look at the University of Michigan consumer sentiment survey for September is released at 10 a.m. ET.
Coming next week: It’s a blockbuster week for central banks with the Federal Reserve and the Bank of England due to reveal their latest policy decisions.
Correction: An earlier version of this story incorrectly attributed a quote on sellers recognizing the shift in market conditions. It should have been attributed to George Ratiu, manager of economic research at Realtor.com.