Marin Wealth Advisors, LLC.

Registered investment Advisor

October 14, 2022

All the Data Disappoints, Another 150bp Looms Prior to Year End (October 14 Market Recap)

Indices 

  • Dow 29,634 +338 or +1.2%. 
  • Nasdaq 10,321 -331 or -3.1%. 
  • S&P 3,583 –56 or -1.5%. 
  • USD10Y 4.01% +12.7bp or +3.2%. 
  • WTI Crude $89.75/bbl -$2.89/bbl or –3.1%.  

All the Data Disappoints 

Pick a number, any number, they all disappointed this week; the NY Fed Inflation Survey, Wholesale Prices (PPI), Consumer Prices (CPI), and the University of Michigan 5-year Inflation Expectations all pointed to persistent, higher inflation that is barely responding (CPI) or not responding at all (Core CPI) to the Fed’s aggressive rate tightening action. 

Wholesale Prices (PPI) and the Consumer Price Index were the stars (or duds) of the week. September month–over-month (MoM) Headline CPI was +0.4% vs expectations of +0.3% and vs last month’s +0.1%. Year-over-year (YoY) the headline number decreased to +8.2% vs last month’s +8.3% but missed expectations of +8.1%. Shelter, food, and medical care were the largest contributors to the number. This is the root of the problem, demand for these items is largely inelastic and thus, immune to the Fed’s actions. It was the third consecutive month that the YoY number has fallen since the June high of +9.1% but that minuscule move will not placate the Fed.  

More disturbing was September Core (ex-food and energy) CPI which was unchanged from last month at +0.6% but was above expectations of +0.2%. As food and energy prices are excluded from the Core number, shelter, medical care and motor vehicle insurance were the top drivers of the number. Frankly, this must be the most vexing number for the members of the Federal Reserve. Despite raising rates 300 bp so far in 2022, core CPI began the year at +6.04% (Jan 31), dipped only as low at +5.91% in both June and July, and has somehow bounced higher, culminating in today’s (September’s) +6.66% number (YoY).  

Another 75 bp rate hike on November 2 is now a certainty and the focus switches to December’s meeting. Before this week’s reports, the futures markets had priced in a 32.5% chance of a 75 bp rate hike on December 14 instead of the 50 bp hike widely expected. After the CPI numbers were released on Wednesday, that number jumped to a 61.8% probability. 

Next Week 

Earnings season kicks off in earnest next week after the major banks reported on Friday. Manufacturing data is due from New York and Philadelphia and the markets will digest insight as to how the housing market is weathering the rise in mortgage rates. 

Economic Calendar 

  • Monday – October Empire State Manufacturing Index. Earnings: Bank of America (BAC). 
  • Tuesday – Earnings: Goldman Sachs (GS), Netflix (NFLX). 
  • Wednesday – September Housing Starts. Earnings: Proctor and Gamble (PG), Tesla (TSLA), IBM (IBM), Lam Research (LRCX). 
  • Thursday – Initial Jobless Claims, October Philadelphia Fed Manufacturing Index, September Existing Home Sales. Earnings: AT&T (T). 
  • Friday – Q3 Index of Common Inflation Expectations 5-10 years and 10 years. Earnings: Verizon (VZ). 

If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review. 

October 14 Daily Trading Recap… 

Monday – Dow -93 to 29,202 Nasdaq -110 to 10,542, S&P +27 to 3,612, USD10Y +0.5bp to 3.888%. 

  • Seven of eleven S&P sectors traded down today, led lower by Energy, Technology, and Real Estate. 

Tuesday – Dow +36 to 29,239, Nasdaq -115 to 10,426, S&P -23 to 3,588, USD10Y +5.1bp to 3.939%. 

  • Seven of eleven S&P sectors traded down again today, led lower by Communication Services, Technology, and Financials. 
  • NY Fed Survey reported one-year inflation expectations down from last month, 5.4 % vs 5.7%. Three-year inflation expectations ticked up from 2.8% to 2.9% and five-year expectations also increased to 2.2% from 2% last month. 

Wednesday – Dow –28 to 29,210, Nasdaq -9 to 10,417, S&P -12 to 3,577, USD10Y –3.7bp to 3.902%. 

Thursday – Dow +829 to 30,038, Nasdaq +232 to 10,649, S&P +93 to 3,669, USD10Y +5.0bp to 3.952%. 

  • All eleven S&P sectors traded higher today, led by Financials, Energy, and Technology. 
  • Jobless claims climbed for consecutive weeks at 228,000 claims vs 225,000 expected and last week’s 2190,000 print (originally was 219,000). Continuing claims ticked up to 1.37 million. 
  • September Headline CPI was a major disappointment, with the month over month (MoM) number at +0.4% vs expectations of +0.3% and vs last month’s +0.1%. Year-over-year the headline number decreased to +8.2% vs last month’s +8.3% but missed expectations of +8.1%. Shelter, food, and medical care were the largest contributors to the number. However, it is the third consecutive month that the YoY number has fallen since the June high of +9.1%.  
  • September Core CPI was unchanged from last month at +0.6% but was above expectations of +0.2%. As food and energy prices are excluded from the Core number, shelter, medical care and motor vehicle insurance were the top drivers of the core number. Frankly, this must be the most disturbing number to the members of the Federal Reserve. Despite raising rates 300 bp in 2022, core CPI began the year at +6.04% (Jan 31) and after dipping only as low at +5.91% in both June and July, it has somehow bounced higher, culminating in today’s (September’s) +6.66% number. Most likely the Fed will not only raise 75 bp in November, but the 50 bp hike planned for December must surely now be raised to 75 bp as well. 

 Friday – Dow -403 to 29,634, Nasdaq –327 to 10,321, S&P -86 to 3,583, USD10Y +5.8bp to 4.010%. 

  • All eleven S&P sectors traded down today led lower by Consumer Discretionary, Energy, and Materials. 
  • September Retail Sales were flat vs expectations of +0.3% and last month’s +0.4% print. 
  • University of Michigan 5-yr Inflation Expectations ticked up to 2.9% vs 2.7% last month. 
  • The money center banks led off Q3 earnings season…JPMorgan Chase (JPM) beat both revenue and earnings estimates and traded up 1.66%. Wells Fargo (WFC) beat both top and bottom lines but set aside $784 billion for loan loss provisions; WFC traded up 1.86%. Morgan Stanley (MS) missed both top and bottom-line expectations and traded down 5.07%. Citigroup (C), beat top and bottom-line estimates and traded up 0.65%. 

 If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review. 

Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.