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Thursday September 28 2023

Things are ‘likely to remain messy’

Markets

S&P500 Close

4,274.51

+0.02%

S&P500 Futures

4,319.25

+0.13%

10Y Treasury

4.61%

0.00%

As of WED, SEP 27, 2023 • 07:42 ET

What you need to know today

Some up, some down
U.S. stocks were mixed Wednesday, with the Dow Jones Industrial Average slipping 0.2%, the S&P 500 remaining mostly unchanged and the Nasdaq Composite adding 0.22%. The 10-year Treasury yield hit 4.607%, its highest since 2007. Europe’s Stoxx 600 dipped 0.18%, its fifth straight day of decline and lowest close since March 28, according to LSEG data.

Fiscally weaker than 2011
The U.S. is weaker now, fiscally speaking, than it was in 2011 when S&P Global Ratings downgraded the country’s long-term credit rating from AAA to AA+, said John Chambers, former chairman of S&P’s ratings committee. That’s because of even higher government debt and more intractable political gridlocks in Congress. The implication: Don’t be surprised by another ratings downgrade.

Rates aren’t high enough?
Minneapolis Federal Reserve President Neel Kashkari thinks the current interest rate range of 5.25% to 5.5% might not be high enough to be restrict inflation, he told CNBC. His evidence: The auto and housing sectors, traditionally most sensitive to rates, are “starting to show some recovery,” Kashkari noted.

Meta doubles down on the metaverse
Meta announced Quest 3, the latest version of its virtual reality headset. Available for $499 — $200 more expensive than the Quest 2 — the headset includes a feature called “passthrough” that allows users to see the world outside quickly. At the company’s event, Meta also announced new artificial intelligence software and digital assistants modeled by celebrities.

PRO Not the bottom yet
Stocks had an awful Wednesday — and September — and August. Well, it just hasn’t been great for stocks lately. But even after that turmoil, it doesn’t look like stocks have hit their bottom yet, writes CNBC Pro’s Bob Pisani. Here are the signs he’s looking for before he thinks stocks can rally again.

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The bottom line

Yeo Boon Ping | Thursday September 28 2023

September’s story hasn’t changed: High yields and oil prices are dragging down stocks. But a twist in the story — a potential and increasingly unavoidable U.S. government shutdown — is making it truly difficult for stocks to have any confidence to climb.

Let’s look at each factor in turn.

Yields on the U.S. 10-year Treasury breached 4.6%, while that of the 2-year Treasury inched up to 5.137% yesterday. If yields continue on their upward trend, it’s likely they’d trigger fresh fears of recession as the cost of borrowing increases.

Rising Treasury yields aren’t the only costs weighing on the economy. Futures for West Texas Intermediate crude popped more than 3% to $93.83 while Brent rallied 2.76% to $96.55. As oil is an input cost for so many components of the economy — from the obvious like gasoline for vehicles, to the more unexpected like food and grocery prices — there’s a possibility companies and consumers will cut back on spending.

Last, a government shutdown means economic data will be delayed, hobbling a Federal Reserve that’s repeatedly said it’s “data-dependent.” With interest rates the highest they’ve been in more than 20 years, even the most careful calibration will have an outsized impact on the economy. Going at it blind — through no fault of the Fed’s — won’t inspire confidence in markets. And a shutdown risks another downgrade by ratings agencies.

Even though September’s already ending, things, as BTIG’s Jonathan Krinsky puts it, “are likely to remain messy.”