Crazy Week Nets Rally, More Volatility to Come (October 7 Market Recap)

October 9, 2022

Crazy Week Nets Rally, More Volatility to Come (October 7 Market Recap)

Indices

Dow 29,296 +571 or +2.0%.
Nasdaq 10,652 +77 or +0.73%.
S&P 3,639 +54 or +1.5%.
USD10Y 3.883% +7.9bp or +2.1%.
WTI Crude $92.64/bbl +$13.15 or +16.54%.

Crazy Week…

The week began with the British government about facing on proposed tax cuts for the wealthy which allowed the pound to rally back to almost the levels it was at vs the dollar before the introduction of the ill-conceived plan. It also allowed the Bank of England to terminate its long bond buying program in support of the pound. Along with mixed manufacturing data and a JOLTS report that showed a tightening labor market, the indices finally had some foundational support for a rally on Monday and Tuesday. In fact, by the end of the week, that foundation looked more like a house of cards as the markets gave back much but not all of what had been gained early in the week. It all started on Wednesday, when OPEC and Russia agreed on a 2 million barrels per day cut of crude oil production, then the services numbers were better than expected, and even though Jobless Claims were up and the Non-Farm payrolls number was down, the unemployment rate decreased by a tenth of a percent and that was enough to spook the already jittery equity markets. Add to that, three Fed governors all spouting hawkish inflation comments with regards to future rate hikes and the end of the week couldn’t come soon enough.

Next Week

It is a huge week regarding economic data that may determine the size of the next rate hike in November. Wholesale prices (PPI) for September are released on Monday. On Thursday, Headline and Core Consumer Price Index (CPI) are released, and on Friday, September Retail Sales is unveiled.

Economic Calendar

Monday – September Producer Price Index (PPI).
Tuesday – NY Fed 5-year inflation expectations.
Wednesday – September Fed FOMC minutes.
Thursday – Initial Jobless Claims, September Headline and Core CPI.
Friday – September Retail Sales.

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 7 Daily Trading Recap…

Monday – Dow +765 to 29,490, Nasdaq +239 to 10,815, S&P +92 to 3,678, USD10Y –15.3bp to 3.651%.

All eleven S&P sectors traded higher today, led by Energy, Materials, and Technology.
September Final S&P Manufacturing PMI was better at 52 vs 51.8 expected.
Sept ISM Manufacturing Index was worse at 50.9% vs 52% expected.
British Prime Minister Liz Trust announced her administration was abandoning plans to cut taxes for top earners which sent the British pound spiraling to decade lows last week. The original unveiling of the plan, which was unfunded, momentarily had British fiscal and monetary policy working in direct conflict with each other. The British Central Bank had been tightening short term rates, much like the Federal Reserve here in the U.S. This has the effect of making currency more expensive in terms of interest rates and is thus anti-inflationary. The proposed tax cuts would have put more money into the system which is inflationary. To top it off, in order to stem the selling of the British pound, the Central Bank had to briefly BUY long dated British bonds, called Gilts, which put additional money into the system, which of course is inflationary. Mind you, inflation in the UK is worse than here, currently running at 9.9% year over year. Today the pound rebounded to almost where it was before the tax cuts were introduced, international markets stabilized, and the US markets soared.

Tuesday – Dow +825 to 30,316, Nasdaq +360 to 11,176, S&P +112 to 3,790, USD10Y –3.4bp to 3.617%.

All eleven S&P sectors traded higher today, led by Energy, Financials, and Consumer Discretionary.
August Job Openings and Labor Turnover Survey contracted to 13-month low of 10.1 million openings, down 9.8% month over month, the fourth decline in the last five months, and the lowest number of openings since November 2021.
The Australian Central bank raised rates only 25bp vs an expected 50bp hike. This may have given U.S. markets hope that the Fed will begin to slow their rate of hikes sooner rather than later as well.

Wednesday – Dow –42 to 30,273, Nasdaq -27 to 11,148, S&P -7 to 3,783, USD10Y +14.2bp to 3.759%.

Eight of eleven S&P sectors traded down, led lower by Utilities, Real Estate and Materials.
OPEC and Russia agreed to a 2 million/bbl/day production cut of crude oil. The move had been widely anticipated by the markets as WTI has traded up 8.5% since Friday’s close.
The September ADP Jobs Report showed a gain of 208,000 jobs, better than the 200,000 expected and much better than last month’s 185,000 print.
September Final S&P Services PMI was 49.3 vs 49.2 expected and vs last month’s 49.2 print.
September ISM Services Index was also better at 56.7% vs 56% and last month’s 56.95

Thursday – Dow -346 to 29,926, Nasdaq -75 to 11,073, S&P -38 to 3,744, USD10Y +6.7bp to 3.826%.

Ten of eleven S&P sectors traded down today, led lower by Utilities, Real Estate, an Consumer Staples.
Jobless claims climbed for the first time in seven weeks at 219,000 claims vs 203,000 expected and last week’s revised lower 190,000 print (originally was 193,000). Continuing claims ticked up to 1.36 million.
Three Fed officials spoke today, and each gave unequivocal hawkish statements regarding rate hikes: Minneapolis Fed President Kashkari said the Fed is “quite a ways away” from pausing, Chicago Fed President Evans said he sees the benchmark rate going to 4.5% to 4.75% by next spring (currently it sits at 3%-3.25%), and Cleveland Fed President Masters said the U.S. is in an unacceptably high inflation environment. The comments made by these three undoubtedly sunk the market after a brief rally this morning after the jobless claims report.

Friday – Dow -630 to 29,296, Nasdaq –420 to 10,652, S&P -105 to 3,639, USD10Y +5.7bp to 3.883%.

All eleven S&P sectors traded down today led lower by Technology, and Consumer Discretionary, and Communication Services.
September Non-Farm Payrolls were worse than expected at 263,000 jobs created vs expectations of 275,000 and last month’s 363,000 print.
September unemployment fell to 3.5%, down from 3.7% the month prior, which spooked the already jittery equity markets and sent all three indices considerably lower.

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.