“Markets have [gotten] used to the idea of the Fed riding to the rescue,” Michael Hewson of CMC Markets told me. “I just do not see that happening.”
The problem with this thesis is it discounts the tough decisions that face the central bank, given the chance that inflation stays elevated for longer than anyone wants.
“If the market really thinks the Fed [is] going to start cutting rates next year, I’d like what it’s smoking,” Hewson said.
Already, there are signs that sentiment is starting to weaken again. US stock futures are down after the S&P 500 snapped its four-week winning streak on Friday. They could continue to drop as yields on 10-year US Treasuries, which move opposite prices, push back up toward 3%, making riskier investments look less attractive. The US dollar is also moving higher, indicating a waning appetite for risk.
The central bank said that “uncertainty about the medium-term course of inflation remained high” and noted that price rises are well above its 2% target, which indicates it will need to stay tough. At the same time, it said it “would become appropriate at some point to slow the pace of policy rate increases,” since there is a lag time between action and when the effects are reflected across the economy.
If markets continue to rally, it also could make the Fed more likely to hew hawkish, since it wants financing costs for business to rise, not fall, as stopping inflation remains the top priority.
Goldman Sachs told clients on Monday that “downside risks loom,” noting that the path for inflation and growth, which determines what the Fed does next, will also dictate where the market heads.
On the radar: Attention now turns to Jackson Hole, Wyoming, where Chair Jerome Powell is scheduled to speak at the central bank’s annual symposium later this week. Nicholas Colas of DataTrek Research notes that the S&P 500 is down just 5% since the last Jackson Hole event. Does that really reflect all that’s changed during that time?
Owner of Regal Cinemas may file for bankruptcy
The latest: British company Cineworld Group said in a statement that a “voluntary Chapter 11 filing in the United States” was one of the options it was reviewing in an attempt to reduce its debt burden, my CNN Business colleague Mark Thompson reports.
Cineworld and Regal theaters would stay open in the meantime, it added.
Investor insight: Shares in Cineworld crashed as much as 80% in London on Friday after the Wall Street Journal reported that the world’s second largest movie theater chain had spoken to lawyers at Kirkland & Ellis to advise on the bankruptcy process in the United States and United Kingdom.
They’ve recovered slightly since Friday’s rout, but are still trading nearly 60% below Thursday’s closing level.
The company struggled to stay afloat during the pandemic, when it was forced to close its movie theaters worldwide. It suffered a $2.7 billion loss in 2020, and $566 million loss in 2021.
Cineworld said earlier last week that, despite a “gradual recovery of demand” since last spring, admissions were below expectations. Revenues at the US box office so far this year are nearly 30% lower than before the pandemic, according to Comscore, a media data company.
Cineworld blamed a limited roster of films for the lack of moviegoers, a situation it expects to continue until the end of November.
What the memes reveal about Facebook’s metaverse gamble
When Meta CEO Mark Zuckerberg debuted Horizon Worlds, a virtual reality social app, in France and Spain last week, he shared a photo of himself as a digital avatar, posing in front of the Eiffel Tower and rolling green hills.
Zuckerberg said on Friday that there were more updates coming, and posted a photo of a more advanced-looking avatar on Instagram and Facebook, my CNN Business colleague Ramishah Maruf reported.
“I know the photo I posted earlier this week was pretty basic — it was taken very quickly to celebrate a launch,” Zuckerberg wrote, adding that the team is “capable of much more.” He promised that Horizon is “improving very quickly.”
My thought bubble: Facebook and Meta are easy targets for social media users after a series of scandals eroded public trust. But the episode underscores the stakes for Meta as it pivots toward augmented and virtual reality, an effort that cost more than $10 billion last year.
Analysts see big opportunities for businesses in the metaverse. But whether Facebook’s parent company is best positioned to take advantage of them is an open question. The graphics snafu raises doubts.
Coming tomorrow: S&P Global publishes its latest batch of PMI data, which tracks the health of the manufacturing and services sectors of top economies.