How the rapid inflation spike can cause a recession shock - and what that means for your portfolio.
Today, I'm breaking down how policy and inflation are weighing on major stock indexes — but first, let's start with a separate matter.
Among some of my colleagues, there's been chatter about President Biden's student loan forgiveness plan. Some feel relieved; others confused.
Specific to us markets folks, though, there is a stock market angle to this story.
Experts say that while it may free up cash for millions of Americans, the $300 billion move won't spark a stock-buying spree like the pandemic stimmy checks did. Still, as a form of stimulus not totally unlike free money, there could be some heightened inflows into stocks.
You can read the full analysis here.
And one more thing before we begin: Everyone's talking about "quiet quitting" right now. Conan O'Brien's assistant Sona Movsesian told The Refresh from Insider how she's been doing it for over a decade. Listen to her talk about doing the "minimal amount of work possible."
Okay, let's get to today's market updates.
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1. The fast inflation spike is leading to a slow recession shock, and Bank of America said that can push the stock market to new lows.
The firm's analysts expect stocks to crumble and Treasury yields to pop following Jerome Powell's hawkish and brief remarks in Wyoming.
"Jackson Hole marked the end of 'Mission Accomplished' summer trade of peak CPI, peak yields, [and expected] Fed cuts in 2023," BofA said in a Friday note.
The combination of inflation, fiscal stimulus, and prior era of wealth accumulation — not to mention the new era of "economic cancel culture" — are set to tip the economy into a recession, the strategists noted.
All that has left BofA anticipating a bearish trajectory for the S&P 500 toward 3,300.
And Friday's "Goldilocks" jobs data suggests that more outsized rate hikes loom, too, according to ING, a move that would weigh further on the stock market.
Despite the economy being in a technical recession, ING analysts said, 3.5 million jobs were created.
Both ING and BlackRock's Rick Rieder forecasted that easing inflation can allow the Fed to slow its pace of rate hikes.
"The Fed has described a willingness, and in fact a desire to reduce demand in the system, with somewhat higher levels of unemployment as an offshoot of the need to address high and persistent levels of inflation head-on," Rieder said.
What's your prediction for August CPI figures ahead of the next Fed meeting? Email prosen@insider.com or tweet @philrosenn.
In other news:
2. US stock futures rise early Tuesday. Meanwhile, oil prices are losing ground as investors weigh the OPEC+ move Monday to cut quotas by 100,000 barrels of crude a day. Russia has also vowed to keep Nord Stream 1 natural-gas flows to Europe frozen until the "collective West" lifts sanctions against Moscow. Here are the latest market moves.
3. On the docket: Ashtead plc, Guidewire Software Inc, and HealthEquity Inc, all reporting. Plus, look out for the ISM report on business services PMI, due to be released by the Institute for Supply Management later this morning.
4. A top 1% portfolio manager recommended these stocks picks to invest like a contrarian. James Davolos, who has beaten the majority of his competitors over the last 10 years, broke down his investment process. See the six stocks he's eyeing right now.
5. Bridgewater, Renaissance, and other top hedge funds bought nearly $1 billion of Berkshire Hathaway stock in the second quarter, according to a report. Even amid the broader market downturn, Warren Buffett's company has lost a modest 6% this year — far better than the S&P 500, which has tumbled 17%.
6. Commodities could help pare losses for the traditional 60/40 investment strategy. The classic stocks and bonds mix is down 14% through August, but portfolios that add in commodities would be only down 1.1% this year, according to Bespoke Investment Group. This is what the strategists recommend.
7. Stocks in Russia have climbed to a three-month high. The MOEX index reached its highest level since May, even as economists debate the strength of the Russian economy. Here's what you want to know.
8. Goldman Sachs said home-price increases will "stall completely" as the bank turns bearish on the housing market. Economists from the firm expect property prices to stagnate nationwide, with declines likely in certain areas. Find out what parts of the country could see the biggest drops.
9. A portfolio manager with 29 years of experience shared four stocks he thinks investors are severely underestimating. "We think the market will be in a much better place" by the end of October, according to Max Wasserman of Miramar Capital. Here's why the veteran investor expects stocks to bottom out next month.
10. The latest jobs report suggests the Fed's plan to fight inflation might just be working. Job growth eased throughout last month, which hints that the economy is settling into a phase of weaker growth amid rising interest rates. Dig into the data here.
Keep up with the latest markets news throughout your day by checking out The Refresh from Insider, a dynamic audio news brief from the Insider newsroom. Listen here.
Curated by Phil Rosen in New York. (Feedback or tips? Email prosen@insider.com or tweet @philrosenn).
Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.