Pre-sold stocks: A ‘tectonic shift’ in global wealth that will take years to recover from | Job Binary

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Markets tumbled on Thursday morning after tepid inflation data fueled fears on Wall Street that the Federal Reserve will continue to raise interest rates aggressively. Then something strange happened.

Stocks were withdrawn en masse. The Dow Jones Industrial Average rallied 1,500 points from its peak to its low, and the S&P 500 posted its widest trading range since March 2020, ending the day up more than 2%.

What’s going on: The consumer price index, or CPI, rose 0.4% in September from a month earlier, more than double the 0.2% forecast by analysts polled by Refinitiv. Annual inflation was 8.2%.

The Fed can’t be happy about this report. In the minutes of their September meeting released on Wednesday, officials expressed concern about “the risk of a significant negative impact on the economic outlook” if inflation continues to accelerate.

So what explains the sharp divergence between the markets and the dire-looking inflation data? Investors can bet that the stronger-than-expected inflation report means price growth is nearing its peak. The roller coaster market shows how investors are looking for clues about what the Fed will do next.

In the meantime, unbridled inflation will take a heavy toll on households, Disconnecting Wall Street from Main Street.

Big picture: Household wealth is on track for its first significant decline since the 2008 financial crisis, according to a new report from financial services company Allianz.

Global assets will decline by more than 2% in 2022, according to Allianz. That means households will lose an average of one-tenth of their wealth this year.

The report paints a bleak picture. The financial crisis of 2008 was characterized by a relatively rapid turnover, but the current forecast points to stagnation in the future. Average growth in financial assets is expected to be around 4.6% through 2025, compared to 10.4% over the past three years.

Russia’s war on Ukraine has hampered the economy’s ability to recover from the pandemic and exacerbated food and energy shortages. Inflation is running high and central banks around the world are raising borrowing costs. Stock markets could end the year in the red – 2021 “could be the last year of the old ‘new normal’ with low interest rates and high-value stock markets,” Allianz researchers wrote.

And household debt is growing worldwide. “Rising interest rates and rising costs of living could threaten household balance sheets,” the researchers said.

Takeaway: Allianz calls these changes a “tectonic shift” in global wealth that will take years to reverse. Today’s release of US retail sales for September may shed more light on consumer sentiment, as some of the nation’s biggest lenders — JPMorgan ( JPM ) , Citigroup ( C ) , Wells Fargo ( WFG ) and Morgan Stanley — are expected to report earnings. (MS) all report this morning.

This week, mortgage rates in the US rose again – even closer to 7%.

According to Freddie Mac, 30-year fixed-rate mortgages averaged 6.92% in the week ended Oct. 13, up from 6.66% the previous week. This is the highest average since April 2002.

The upward move has been swift: a year ago, the 30-year fixed rate was 3.05%. Mortgage rates have more than doubled in the past year as the Federal Reserve launched an unprecedented campaign to raise interest rates to quell rising inflation.

A combination of central bank rate hikes, investor worries about a recession and mixed economic news has made mortgage rates volatile over the past few months, my colleague Anna Bahni reports.

“We continue to see a tale of two economies in the data,” said Sam Hater, chief economist at Freddie Mac. “Strong job and wage growth will keep consumer balance sheets positive, while lingering inflation, recession fears and housing affordability will dampen demand for housing.”

Doing the math: A buyer who put 20 percent down on a $390,000 home a year ago and financed the rest with a 30-year fixed-rate mortgage at an average interest rate of 3.05 percent had a monthly mortgage payment of $1,324, according to Freddie’s calculations. Mac.

Today, a homeowner buying a similarly priced home with an average rate of 6.92% would pay $2,059 a month in principal and interest. That’s $735 more every month.

What’s next: The next few months will undoubtedly be important for the economy and the housing market, Khater said. Already, home sales are down and prices are cooling.

With fewer people looking to buy a mortgage or refinance a home, and the future economic outlook uncertain, getting a loan is becoming more difficult.

Netflix ( NFLX ) was once a haven from constant daily ads.

That’s no longer the case, reports my colleague Frank Pallotta.

On Thursday, Netflix unveiled Prime with Ads, its long-awaited ad-supported subscription plan. The new tier costs $6.99 per month in the US.

The new option offers most of what’s available on Netflix’s current $9.99 per month Basic plan, but includes an average of four to five minutes of ads per hour. These ads are 15 or 30 seconds long and are shown before and during TV shows and movies.

The debut of an advertising subscription plan is a significant moment in Netflix’s 25-year history.

“We … provide advertising for free,” Netflix said in a 2019 letter to shareholders. “It remains a deep part of our brand proposition.”

But after the dreaded 2022, the platform can no longer follow this approach.

In April, Netflix announced that it had lost subscribers for the first time in more than a decade.

Shares plummeted after the news, and the company lost billions in market capitalization. Hundreds of employees have been laid off and the platform’s future is in doubt, raising questions about the viability of the entire streaming market.

Ultimately, Netflix needs more revenue, and ads are one way to get there.

JPMorgan Chase ( JPM ), Wells Fargo ( WFM ), Citigroup ( C ) and Morgan Stanley ( MS ) will report third-quarter earnings ahead of the call.

The US Census Bureau is expected to release September retail sales data at 8:30 a.m. ET.

Coming next week:

▸ National Association of Realtors reports September home sales.

▸ Bank of America (BAC), Goldman Sachs (GS), Johnson & Johnson (JNJ), United Airlines (UAL), American Airlines (AAL), Tesla (TSLA), AT&T (T), Verizon (VZ) in the third quarter earnings ) and Netflix (NFLX).

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