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Stocks face another turbulent week as the third quarter winds down

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A trader works inside a post on the floor of the New York Stock Exchange (NYSE), August 27, 2021.

Brendan McDermid | Reuters

After recent turbulence, markets are likely to close out the final week of the third quarter with another bout of volatility.

Stocks in the past week traded with big extremes. First, fears of financial contagion coming from Chinese developer Evergrande sent stocks skidding Monday. Losses were reversed by Thursday, when the market ripped higher. The S&P 500 and the Dow Jones Industrial Average were positive for the week, while the Nasdaq eked out a gain.

“I think this market turmoil has yet to conclude,” said Sam Stovall, CFRA chief investment strategist. “Certainly September is doing what it normally does. It frustrates investors.”

The three major stock indices were also higher for the third quarter so far.

Strategists say how the market trades in the coming week may be the most important development, after the wild swings in stocks and also the rapid rise in Treasury yields late in the week. The 10-year, at about 1.3% on Wednesday shot up to nearly 1.46% by Friday.

The S&P 500 was down about 1.4% for the month of September so far. “We are getting long in the tooth. The technical indicators are pointing to distribution. We’re seeing prices roll over, breadth roll over. You’re seeing sentiment roll over,” said Stovall. He said the breadth needs to improve, and many stocks are trading below their 200-day moving average.

October is a ‘seismic’ month

“I think October will be true to itself, which is a very volatile month. October’s volatility is 36% higher than the average of the other 11 months of the year,” Stovall said. “Volatility is higher and you have a greater number of pullbacks, corrections and bear markets that either start or end in the month. It is a seismic month.”

Wealth management firm Wellington Shields warns that the fact many stocks have fallen below their 200-day moving average is a negative for the market. Just 59% of the stocks on the New York Stock Exchange remain above it, or in an uptrend, according to the firm. The 200-day moving average is the average of the last 200 closing prices of a stock or index, and it’s viewed as a momentum indicator.

“The rule is that when this 200-day number drops from above 80% to below 60%, it usually goes below 30%. Forgetting that, the real point is that while most stocks may be advancing, barely more than half are advancing enough to be in uptrends. With the market just a few percent below its highs, this is a concern,” Wellington said in a note.

What to watch

In the coming week, there are a few key economic reports including including durable goods Monday and ISM manufacturing Friday. There is also personal consumption expenditure data Friday, which the Federal Reserve monitors for its inflation index.

The Federal Reserve will remain a big focus in the week ahead. There will be a host of Fed speakers, including Fed Chairman Jerome Powell who testifies twice before Congress on the pandemic and the policy response to it. Treasury Secretary Janet Yellen will join him for the hearings Tuesday and Thursday. Powell also appears on a European Central Bank panel with other central bank leaders Wednesday.

Investors will also be watching Congress in the week ahead as it attempts to pass a funding plan in time to avert a government shutdown Oct. 1. The debt ceiling is expected to be part of that debate, but strategists do not expect it to be resolved at the same time. They say this could hang over the markets for several weeks before Congress raises the debt ceiling.

Fed speakers are not expected to provide any new information, but they could fine tune their message after the central bank signaled this past Wednesday that it expects to begin paring down its $120 billion in in monthly bond purchases soon. The Fed also released a new forecast for interest rates, which revealed that half of the 18 Fed officials expect to raise interest rates next year.

“I think what the Fed’s achieved so far is a taper without a tantrum,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.

“I think a lot of people who invest in the market have a sense they are skating on thin ice, and any crack could be a big one… people are highly sensitive and nervous because they know valuations are stretched,” he said. “That means we should expect these episodic jumps in volatility.”

Chandler said the market will need to digest the recent moves, particularly the move higher in Treasury yields.

“What we’ve got to wait for now is finding this new equilibrium. What kind of market should we expect? Trending? Or do we try to find a range?” he said. “I think we find a range. We need some hurdles to pass.” Chandler said one hurdle is the September jobs report on Oct. 8.

The Fed is expected to taper its $120 billion monthly bond purchases unless there is shockingly weak employment data. “That is the only thing that stands in the way of Fed tapering,” Chandler said.

Wells Fargo’s Michael Schumacher, said the quarter end could be quiet in terms of big funds rebalancing. “The equity market bounced around. It’s up on the quarter. That wasn’t much when you compare it to the bond performance,” he said.

The 10-year yield made an unusually volatile round trip move in the third quarter. It was 1.47% on June 30, and it was as high as 1.46% Friday. In between it dipped to 1.12% in early August. Schumacher said the bond market could be quieter ahead of the quarter end, and the 10-year yield could then resume its move higher.

Some strategists watch the 10-year Treasury yield as a leading indicator for stocks. It is also linked to moves in technology and other high-growth stocks.

What’s next

Katie Stockton, founder of Fairlead Strategies, said high growth and tech are susceptible now to moves in the 10-year Treasury yield. She said the technology sector is the most overbought in relative terms, when comparing the sector to the S&P 500. The S&P tech sector was up about 0.8% for the week, and it was up nearly 6% for the quarter.

“We would consider reducing exposure to growthy ETFs like ARKK and would be respectful of any breakdowns,” said Stockton.

Investors have been fixated on the S&P 500’s 50-day moving average. For the first time this year, the index broke below and closed under the average for multiple sessions this past week. By Thursday, it regained the 50-day and finished above it. The broad-market index closed above the 50-day moving average on Friday.

The 50-day is literally the average of the last 50 closing prices, and it is viewed as an important momentum indicator, just as the 200-day moving average is. A break above could signal a positive move, and a break below it could mean more downside.

Stockton said the relief rally in the S&P 500 could resume in the coming week. “But we think it will fade by the end of the week given the downturns in our intermediate-term indicators. We expect the SPX to make a lower high,” she wrote in a note.

She expects the 10-year Treasury yield could continue higher. “Momentum appears to be shifting to the upside and next resistance is near 1.53%. The breakout should benefit the financial sector, which saw significant outperformance [Thursday],” Stockton noted.

Week ahead calendar

Monday

Earnings: Aurora Cannabis

8:00 a.m. Chicago Fed President Charles Evans

8:30 a.m. Durable goods

12:50 p.m. Fed Governor Lael Brainard

Tuesday

Earnings: IHS Markit, Micron, Cal-Maine Foods, Thor Industries, United Natural Foods, FactSet

8:30 a.m. Advance economic indicators

9:00 a.m. Chicago Fed’s Evans

9:00 a.m. S&P Case-Shiller home prices

9:00 a.m. FHFA home prices

10:00 a.m. Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen before Senate Banking, Housing and Urban Affairs Committee on pandemic response

10:00 a.m. Consumer confidence

1:40 p.m. Fed Governor Michelle Bowman

3:00 p.m. Atlanta Fed President Raphael Bostic

7:00 p.m. St. Louis Fed President James Bullard

Wednesday

Earnings: Jabil, Cintas, Herman Miller

10:00 a.m. Pending home sales

11:45 a.m. Fed Chairman Powell on European Central Bank panel

2:00 p.m. Atlanta Fed’s Bostic

Thursday

Earnings: Jefferies Financial, CarMax, Bed Bath & Beyond, Paychex

8:30 a.m. Initial jobless claims

8:30 a.m. Real GDP Q2

9:45 a.m. Chicago PMI

10:00 a.m. Fed Chairman Powell and Treasury Secretary Yellen before House Financial Services Committee

11:00 p.m. Atlanta Fed’s Bostic

11:30 p.m. Philadelphia Fed President Patrick Harker

12:05 p.m. St. Louis Fed’s Bullard

12:30 p.m. Chicago Fed’s Evans

Friday

Monthly vehicle sales

8:30 a.m. Personal income and spending

10:00 a.m. Manufacturing PMI

10:00 a.m. ISM manufacturing

10:00 a.m. Consumer sentiment

10:00 a.m. Construction spending

11:00 a.m. Philadelphia Fed’s Harker

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Twitter and Square CEO Jack Dorsey says ‘hyperinflation’ will happen soon in the U.S. and the world

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Jack Dorsey, CEO of Twitter and co-founder & CEO of Square, speaks during the crypto-currency conference Bitcoin 2021 Convention at the Mana Convention Center in Miami, Florida, on June 4, 2021.

Marco Bello | AFP | Getty Images

Twitter co-founder Jack Dorsey weighed in on escalating inflation in the U.S., saying things are going to get considerably worse.

“Hyperinflation is going to change everything,” Dorsey tweeted Friday night. “It’s happening.”

The tweet comes with consumer price inflation running near a 30-year high in the U.S. and growing concern that the problem could be worse that policymakers have anticipated.

On Friday, Federal Reserve Chairman Jerome Powell acknowledged that inflation pressures “are likely to last longer than previously expected,” noting that they could run “well into next year.” The central bank leader added that he expects the Fed soon to begin pulling back on the extraordinary measures it has provided to help the economy that critics say have stoked the inflation run.

In addition to overseeing a social media platform that has 206 million active daily users, Dorsey is a strong bitcoin advocate. He has said that Square, the debit and credit card processing platform that Dorsey co-founded, is looking at getting into mining the cryptocurrency. Square also owns some bitcoin and facilitates trading in it.

Responding to user comments, Dorsey added Friday that he sees the inflation problem escalating around the globe. “It will happen in the US soon, and so the world,” he tweeted. Dorsey is currently both the CEO of Twitter and Square.

It’s one thing to call for faster inflation, but it may be surprising to some that Dorsey used the word hyperinflation, a condition of rapidly rising prices that can ruin currencies and bring down whole economies.

Billionaire investor Paul Tudor Jones and others have called for a period of rising inflation. Jones told CNBC earlier in the week that he owns some bitcoin and sees it as a good inflation hedge.

“Clearly, there’s a place for crypto. Clearly, it’s winning the race against gold at the moment,” Jones said Wednesday.

But most of the major investors have not gone so far as to call for hyperinflation like Dorsey.

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Alec Baldwin fatal prop gun shooting raises questions about working conditions

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While injuries or death from prop firearms are extremely rare, the accidental killing of Halyna Hutchins on a Sante Fe movie set Thursday has sparked inquiries about working conditions for Hollywood crew members.

“I’ve been in the industry 21 years,” said Kevin Williams, the prop department supervisor at the UCLA School of Theater, Film and Television. “I have not heard of any circumstances like this. So, this is definitely one of these things, and it sounds like a cliche to say, but it really sounds like a freak accident.”

The circumstances of the shooting are under investigation. The Santa Fe County Sheriff’s office confirmed that actor Alec Baldwin fired a prop gun on the set of “Rust,” a Western being filmed at the Bonanza Creek Ranch, killing the film’s director of photography and injuring its director, Joel Souza.

Security guards and a compliance officer at New Mexico’s Bonanza Creek Ranch on Oct. 22, 2021, the film set where actor Alec Baldwin fatally shot cinematographer Halyna Hutchins and wounded a director when he discharged a prop gun.

Adria Malcolm | Reuters

Souza has since been discharged from the hospital. No charges have been filed. The Santa Fe County Sheriff’s office did not immediately respond to CNBC’s request for comment.

While it’s unclear at this point what exactly transpired Thursday, many in the industry have begun to inquire about working conditions on set. These queries come as the International Alliance of Theatrical Stage Employees works to finalize a new three-year contract with the Alliance of Motion Picture and Television Producers that addresses the union’s calls for better working hours, safer workplace conditions and improved benefits.

“There have been times that I have been on projects for 18 to 20 hours and then been asked to return in six,” Williams said.

Crew protested working conditions

The IATSE issued a statement Friday addressing Hutchins’ death and encouraging its members to contact the union’s safety hotline if they feel unsafe on set.

“Our entire alliance mourns this unspeakable loss with Halyna’s family, friends, and the ‘Rust’ crew,” the statement read. “Creating a culture of safety requires relentless vigilance from every one of us, day in and day out. Please, if you see something, say something.”

The union declined to comment further.

A person familiar with the matter told NBC News that half a dozen camera crew workers walked off the “Rust” set in protest of working conditions just hours before the shooting took place. Among their concerns were multiple misfires of the prop gun.

Earlier Friday, the Los Angeles Times reported, citing three unnamed people involved with the production, that the crew was frustrated with the production’s long hours. It also alleged that there were two previous prop gun misfires on set, one the previous week and one on Saturday.

​”The safety of our cast and crew is the top priority of Rust Productions and everyone associated with the company,” Rust Movie Productions said in a statement provided to CNBC. “Though we were not made aware of any official complaints concerning weapon or prop safety on set, we will be conducting an internal review of our procedures while production is shut down.”

Rust Productions is cooperating with the Santa Fe authorities in their investigation.

A ‘potential failure in the system’

Hollywood productions typically adhere to strict safety measures for stunt work, particularly when it comes to weapon and prop safety. The Industry-Wide Labor-Management Safety Committee has written and distributed safety bulletins on best practices for television and movie productions.

“Blanks can kill,” the first bulletin reads. “Treat all firearms as though they are loaded. ‘Live ammunition’ is never to be used nor brought onto any studio lot or stage.”

These guidelines are recommendations and may not apply to reality shows such as “Mythbusters” or “Top Shot” where live rounds are used to test scientific theories or for marksmanship competition.

“I can say unequivocally that a blank round versus a live round is really easy to identify in the hands of an experienced armorer or prop master,” Williams said. “I can’t imagine anybody would say ‘whoops’ and just put that in there.”

He also noted that safety demonstrations are done with all cast and crew involved in firearm stunts who are instructed that prop weapons should never be pointed at another actor or crew member. In cases where a director wants to film a weapon being pointed at the camera and discharged, ballistic shields are used, he said.

“There are a lot of safety measures put in place,” he said. “If it turns out that a live round was loaded into a vintage weapon and it turns out that that is how this happened, then we need to figure out why.”

That’s a “potential failure in the system,” Williams said.

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U.S. officials keep close watch on the ‘delta plus’ mutation as it spreads in the U.K.

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Dr. Rochelle Walensky, Director of the Centers for Disease Control and Prevention, testifies before a Senate Health, Education, Labor and Pensions Committee hearing at the U.S. Capitol on May 11, 2021.

Jim Lo Scalzo | Pool | Reuters

U.S. health officials are keeping a close eye on an emerging Covid-19 subvariant, dubbed “delta plus,” that some scientists say may be more contagious than the already highly transmissible delta variant.

Formally known as AY.4.2, delta plus includes two new mutations to the spike protein, A222V and Y145H, which allow the virus to enter the body. Those mutations have been found in other Covid variants, so it’s unclear how dramatically those changes affect the virus.

Francois Balloux, director of the Genetics Institute at University College London, said it could be 10%-15% more contagious than delta, which first appeared in India and spreads easier than Ebola, SARS, MERS and the 1918 Spanish flu, according to the Centers for Disease Control and Prevention.

Delta has an R-naught, or reproductive rate, of eight or nine, according to CDC Director Dr. Rochelle Walensky, meaning that every person who has Covid will spread it to up to nine other people. The “wild type” or original strain of Covid had an estimated R-naught of about three. Someone infected with the delta variant carries 1,000 times the viral load of the original Covid strain.

India’s Ministry of Health reported in June that delta plus was more transmissible than the delta variant, adding that the subtype binds more strongly to lung cell receptors and could even reduce the effectiveness of monoclonal antibody treatments.

The mutation has been detected in the U.S., but there hasn’t been a noticeable uptick in delta plus cases nationwide, Walensky said at a White House Covid briefing Wednesday.

“We particularly monitor for sublineages that could impact therapeutics, such as monoclonal antibodies and vaccines,” Walensky said. “At this time, there is no evidence that the sublineage AY.4.2 impacts the effectiveness of our current vaccines or therapeutics.”

The AY.4.2 subvariant has been detected in at least five cases in the U.S. since August: in Washington, D.C., California, North Carolina, Washington state and Massachusetts, according to Outbreak.info. The website collects data from GISAID, a global genomic database on Covid and influenza cases.

Top health authorities have cautioned for weeks that more powerful and potentially vaccine-resistant Covid variants could develop as long as widespread outbreaks continue to occur, fueled by billions of people worldwide who remain unvaccinated. White House chief medical advisor Dr. Anthony Fauci said in August that the U.S. could be “in trouble” if another mutation surpassed delta, asking the unvaccinated to get their shots in hopes of curbing a surge that crushed the nation’s health-care systems this summer.

Delta plus could also eventually affect the age groups eligible to receive Covid booster doses, Dr. Peter Marks, the Food and Drug Administration’s lead vaccine regulator, said Wednesday night. The FDA and CDC have authorized Covid boosters for a wide array of adults in the U.S. from all three manufacturers in the U.S.: Moderna, Johnson & Johnson and Pfizer.

“The exact age of that will be based on what we see of the emerging situation, which is quite dynamic right now because we continue to see reports of new variants coming up,” Marks said. “And we’re also seeing changes in the epidemiology of Covid-19 in our country right now with new hotspots coming up even as certain places die down.”

Concerns over delta plus are running high in the U.K., where officials are battling a surge in cases and facing a renewed health crisis. Delta plus cases represented roughly 6% of all sequenced Covid cases as of the week beginning Sept. 27, according to the latest data from the country’s Health Security Agency. The sublineage is “increasing in frequency” in the U.K., the agency noted, and doctors from the National Health Service Confederation in London are calling for a return to stricter Covid protocols heading into the winter.

But global health leaders are urging the public not to panic. Though the emergence of a Covid subtype isn’t the same as an entirely new variant evolving, keeping track of delta’s progression could allow the medical community to better understand the mutation, Dr. Sylvain Aldighieri, Covid-19 incident manager at the World Health Organization’s regional branch for the Americas, said at a briefing Oct. 6.

“Looking to these additional changes, it may help researchers to track the variants on a fine scale,” Aldighieri said. “But they do not imply any functional or biological difference.”

— CNBC’s Holly Ellyatt in London contributed to this report.

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