We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
6 Reasons Why Stocks Could Remain Subdued: ETFs to Gain
Read MoreHide Full Article
Wall Street has been going through a rough ride. The S&P 500 was off 3.6% in the past month (as of Aug 24, 2023). The decline has triggered concerns among investors. JPMorgan's Kolanovic sees the S&P 500 to potentially finish the year at 4,200, reflecting a downside of about 4% from the current levels.There are a few reasons why stocks could continue to fall. Below, we highlight those.
Erosion of Consumer Savings
One significant factor contributing to the potential continuation of the stock market's decline is the weakening consumer. JPMorgan's Kolanovic highlights that consumers have utilized their excess savings from the pandemic, which once totaled over $2 trillion, as quoted on Business Insider, published on Yahoo.
This economic tailwind has now dissipated, potentially leading to a further softening of consumer spending. With student loan payments set to restart in October, there's an added concern about reduced consumer disposable income.
Deteriorating Profit Margins
Kolanovic also emphasized the deteriorating profit margins of companies as a critical concern. The gradual effects of monetary policy have led more companies to resort to promotions and incentives to stimulate demand, eroding their pricing power.Moreover, persistently higher labor costs and rising interest expenses are exerting pressure on profit margins.
Impact of High Interest Rates
High interest rates remain a significant headwind for the stock market. Kolanovic pointed out that monetary policy tightening and the rising cost of capital can hinder economic growth and corporate profitability. With the Fed still seeing upward risks to inflation, rates will likely remain higher for longer. As the business cycle ages, the consensus 2024 EPS growth rate of 12% appears challenging to achieve under these conditions.
Reduced Stock Buybacks and Valuations
Stock buyback programs, a tool often used by companies to support stock prices, are facing challenges. Overvaluations and the new buyback tax now make buybacks less attractive for companies especially when those are financed by debt.
Global Economic Concerns
The J.P. Morgan’s note also underscores global economic risks. Kolanovic highlighted the vulnerability of countries like China (which has been facing an acute real estate sector crisis) and Germany to an imminent recession. These global uncertainties can impact investor sentiment and contribute to further market declines.
U.S. Banking Sector Under Pressure of Potential Downgrade
A Fitch Ratings analyst cautioned that the U.S. banking industry has moved closer to another source of turmoil — the risk of sweeping rating downgrades on dozens of U.S. banks that could even include a behemoth like JPMorgan Chase. The ratings agency cut its assessment of the industry’s health in June, a move that analyst Chris Wolfe said went largely unnoticed because it didn’t initiate downgrades on banks, per a CNBC article.
The fund will employ long and short positions in derivatives, primarily futures contracts and forward contracts, across the broad asset classes of equities, fixed income, currencies and commodities.
The underlying S-Network BlackSwan Core Total Return Index seeks uncapped exposure to the S&P 500, while buffering against the possibility of significant losses.
The AdvisorShares Dorsey Wright Short ETF is actively managed with an investment focus that involves buying securities that have appreciated in price more than the other securities in the investment universe and holding those securities until they underperform.
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
6 Reasons Why Stocks Could Remain Subdued: ETFs to Gain
Wall Street has been going through a rough ride. The S&P 500 was off 3.6% in the past month (as of Aug 24, 2023). The decline has triggered concerns among investors. JPMorgan's Kolanovic sees the S&P 500 to potentially finish the year at 4,200, reflecting a downside of about 4% from the current levels.There are a few reasons why stocks could continue to fall. Below, we highlight those.
Erosion of Consumer Savings
One significant factor contributing to the potential continuation of the stock market's decline is the weakening consumer. JPMorgan's Kolanovic highlights that consumers have utilized their excess savings from the pandemic, which once totaled over $2 trillion, as quoted on Business Insider, published on Yahoo.
This economic tailwind has now dissipated, potentially leading to a further softening of consumer spending. With student loan payments set to restart in October, there's an added concern about reduced consumer disposable income.
Deteriorating Profit Margins
Kolanovic also emphasized the deteriorating profit margins of companies as a critical concern. The gradual effects of monetary policy have led more companies to resort to promotions and incentives to stimulate demand, eroding their pricing power.Moreover, persistently higher labor costs and rising interest expenses are exerting pressure on profit margins.
Impact of High Interest Rates
High interest rates remain a significant headwind for the stock market. Kolanovic pointed out that monetary policy tightening and the rising cost of capital can hinder economic growth and corporate profitability. With the Fed still seeing upward risks to inflation, rates will likely remain higher for longer. As the business cycle ages, the consensus 2024 EPS growth rate of 12% appears challenging to achieve under these conditions.
Reduced Stock Buybacks and Valuations
Stock buyback programs, a tool often used by companies to support stock prices, are facing challenges. Overvaluations and the new buyback tax now make buybacks less attractive for companies especially when those are financed by debt.
Global Economic Concerns
The J.P. Morgan’s note also underscores global economic risks. Kolanovic highlighted the vulnerability of countries like China (which has been facing an acute real estate sector crisis) and Germany to an imminent recession. These global uncertainties can impact investor sentiment and contribute to further market declines.
U.S. Banking Sector Under Pressure of Potential Downgrade
A Fitch Ratings analyst cautioned that the U.S. banking industry has moved closer to another source of turmoil — the risk of sweeping rating downgrades on dozens of U.S. banks that could even include a behemoth like JPMorgan Chase. The ratings agency cut its assessment of the industry’s health in June, a move that analyst Chris Wolfe said went largely unnoticed because it didn’t initiate downgrades on banks, per a CNBC article.
ETFs to Gain
AGF U.S. Market Neutral Anti-Beta Fund (BTAL - Free Report)
The underlying Dow Jones U.S. Thematic Market Neutral Anti-Beta Index is a long/short market neutral index that is dollar-neutral.
IMGP DBi Managed Futures Strategy ETF (DBMF - Free Report)
The fund will employ long and short positions in derivatives, primarily futures contracts and forward contracts, across the broad asset classes of equities, fixed income, currencies and commodities.
Amplify BlackSwan Growth & Treasury Core ETF (SWAN - Free Report)
The underlying S-Network BlackSwan Core Total Return Index seeks uncapped exposure to the S&P 500, while buffering against the possibility of significant losses.
AdvisorShares Dorsey Wright Short ETF (DWSH - Free Report)
The AdvisorShares Dorsey Wright Short ETF is actively managed with an investment focus that involves buying securities that have appreciated in price more than the other securities in the investment universe and holding those securities until they underperform.
(Disclaimer: This article has been written with the assistance of Generative AI. However, the author has reviewed, revised, supplemented, and rewritten parts of this content to ensure its originality and the precision of the incorporated information.)