Pre-market trading: Wall Street averted a rail strike crisis, but there are problems ahead

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The White House’s announcement of a tentative agreement to avert the first national rail strike in three decades comes as a huge relief to companies and investors worried about new disruptions in the supply chain.

But it’s not the only potential catalyst for another sell-off in the market, as uncertainty continues to dominate.

What’s happening: Active investors have had a rough year — more than half of large-cap stock fund managers in the United States underperformed the S&P 500 in the first half of 2022, according to S&P Dow Jones Indices. Unfortunately, there are a lot of bumps in the road ahead for investors in the coming weeks.

look here: FedEx stock fell nearly 20% in presale trading on Friday after the company withdrew financial guidance it issued just a few months ago and said it would move to cut costs as demand for packages plummeted worldwide. The company is seen as a leader in the economy since it 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 shaken markets around the world. Now with major central banks making aggressive rounds of monetary tightening to fight inflation, investors fear they may go too far.

On Wednesday, the US Federal Reserve will announce its decision on the next round of interest rate hikes. Fed Chairman Jerome Powell, in the face of a very tight labor market and rising inflation, has sent an upbeat message to investors – suggesting the central bank is likely to raise 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 sluggish employment numbers, especially wage data, and widening credit spreads that make corporate borrowing more expensive.

This means higher bond yields, lower stock prices, and less chance of a soft landing.

2. Earning season is coming. Another risk to Wall Street is weak corporate earnings in October.

About half of the S&P 500 companies reported “recession” during their second-quarter earnings calls, the highest number since 2010. Wall Street estimates for the following quarter reflect that gloom.

Estimates for third-quarter earnings per share have fallen more than 5.5% since the end of June, according to FactSet data. This is the biggest quarterly drop since the second quarter of 2020 (when Covid-19 plunged the US into recession).

Charles Schwab analysts expect weak earnings growth through 2022 compared to last year.

3. The war in Ukraine. The markets have encouraged Ukraine’s progress, but the outcome of the war is by no means certain. There should be investors at the ready. Even if the conflict continues to swing in Ukraine’s favour, Europe is unlikely to avoid the recession caused by this winter’s invasion-induced energy crisis.

Global commodity flows, including vital supplies of fossil fuels, food and fertilizers, continue to be impeded no matter which side wins the battle. A new report from S&P Global Ratings estimates that the global food and energy shocks associated with the war will last until at least 2024. These shocks will continue to affect GDP and financial performance.

U.S. mortgage rates jumped over 6% this week, hitting their highest level since the fall of 2008.

High borrowing costs and meager inventory levels continue to weigh on Americans looking for affordable housing, says my colleague Anna Bahney.

Sam Khater, chief economist at Freddie Mac, pointed out that stubbornly high inflation is to blame for raising interest rates.

Interest rates fell in July and early August as recession fears spread. But comments from Federal Reserve Chair Jerome Powell and recent economic data have drawn investors’ attention once again to the central bank’s fight against inflation, sending interest rates higher.

There is a silver lining for those interested in buying. As mortgage rates rise and home prices continue to rise, home sales are slowing. Prices may also drop soon.

With borrowing costs expected to continue to rise in the next few months, it is becoming increasingly clear that home prices need to fall to rebalance housing markets.

“Many sellers are aware of the shift in market conditions and are responding with lower asking prices,” said George Ratio, director of economic research at Realtor.com. “These changes coincide with the time of year when buyers have historically found the best market conditions to find a bargain.”

Chinese leader Xi Jinping and his Russian counterpart Vladimir Putin met face to face on Thursday for the first time since Moscow sent troops to Ukraine earlier this year. Investors watched the meeting closely for clues about the state of their economic relationship.

At the start of the meeting, Putin acknowledged that Xi had “questions and concerns” about the invasion. However, their economic partnership does not appear to be in jeopardy, my CNN colleague Nectar Gan reports.

Beijing has boosted bilateral trade to record levels in a boon for Russian businesses amid Western sanctions. China’s spending on Russian goods increased by 60% in August compared to a year ago. Its shipments to Russia jumped 26% to $8 billion in August, according to my colleague Laura He.

Putin stressed the deepening of economic relations between the two countries in their meeting, noting that bilateral trade exceeded $140 billion last year. “I am convinced that by the end of the year we will reach new highs and in the near future,” he said.

Beijing has carefully avoided violating Western sanctions or providing direct military support to Moscow, but Chinese companies benefit from the exit of Western brands from Russia.

Reuters reported that Chinese smartphones accounted for two-thirds of all new sales in Russia between April and June. Passenger cars from Chinese manufacturers accounted for nearly 26% of the Russian market in August, an all-time high, according to Russian analysis agency Autostat.

The first look at the University of Michigan’s September consumer survey was released at 10 a.m. ET.

Next week comes: It’s a busy week for central banks as the Federal Reserve and the Bank of England are set to reveal their latest policy decisions.

Correction: An earlier version of this story incorrectly attributed a quote to sellers who recognized the shift in market conditions. It should have been attributed to George Ratio, director of economic research at Realtor.com.

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