October 2, 2022

Stock markets greet Q3 amid recession fears

Stock markets greet Q3 amid recession fears

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Despite a strong relief rally on Friday – Wall Street’s three major stock indexes ended sharply higher – stock markets concluded the worst first half since 1970.

Decade-high inflation and fears of a recession were amid factors that led to the stock markets’ worst first half in over 50 years.

Still, there are reasons for optimism as history offers hope.

In the first half of 1970, when the S&P 500 plunged 21%, it promptly reversed those losses to gain 26.5% in the second half. So, experts pin their hopes on a market recovery in the second half because it’s happened before. 

However, a lot going on could quickly derail a rebound; inflationary pressures and political uncertainty, along with supply-chain problems and the effect of the Ukraine-Russia war on global food markets.

Market participants are bracing for several potentially pivotal events in July that could dictate the direction markets take over.

The weekly economic calendar ahead

This holiday-shortened trading week is packed with economic data, including key jobs data and the FOMC Minutes of the meeting. 

Services PMI data for all major developed and emerging economies will be in focus, building the economic picture for June.

The Reserve Bank of Australia met today, Tuesday, raising interest rates for a third straight month and flagged more ahead to curb inflation running at two-decade highs.

Wednesday’s minutes from the US central bank’s June meeting will give investors some insight into how policymakers see the future path of interest rates. In the meanwhile, markets remain focused on the prospect of a recession.

Elsewhere, the European Central Bank will release minutes of its June deliberations on Thursday, and Canada also publishes jobs data.

Friday’s nonfarm payroll is expected to slow from May but remains in solid, positive territory. Investors are greeting the third quarter with greater trepidation about a recession. This makes the June jobs report a potentially bigger catalyst for markets. The Bloomberg survey median may show a 273,000 increase for June. The unemployment rate probably stays at 3.6%, while average hourly earnings probably rose 5% from a year ago.

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