Markets Explode on Fed Whispers of a Pause, Huge Week Ahead (October 21 Market Recap)
Indices
- Dow 31,082 +1,448 or +4.9%.
- Nasdaq 10,859 +538 or +5.2%.
- S&P 3,752 +169 or +4.7%.
- USD10Y 4.213% +20.3bp or +5.0%.
- WTI Crude $86.00/bbl -$3.75 or –4.2%.
Markets Explode on Fed Whispers of a Pause
The markets opened the week on a bit of a tear, continuing the week prior’s rally. Monday saw more good news from the banking sector as Bank of America reported excellent numbers and fears of the UK’s financial sector melting down due to the inane tax policies of the latest inhabitant of 10 Downing Street subsided after those plans were shelved. Even bad news from the Empire Manufacturing number (a truly horrific print) was ignored if not cheered as perhaps this could be more data to convince the Fed to slow the pace of their rate hikes.
Tuesday the party continued with great earnings from Goldman Sachs (GS) and Salesforce (CRM) popping on news of an activist shareholder announcing a substantial stake in the company.
Wednesday and Thursday were consolidation days as the Fed’s September Beige Book survey showed inflation subsiding albeit very slowly, the economy slowly growing, the labor market still tight, and recession fears growing among the survey’s participants. Earnings continued to hold up with a great reports from Netflix (NFLX), AT&T (T) and IBM (IBM). The Philly Fed Manufacturing Index, while not as bad as New York’s, was better month over month (MoM) but still missed expectations. September existing home sales were also down MoM. Part of the weakness in the markets on Wednesday and Thursday was due to the US10-Year Treasury yield which rallied 5% during the week and touched highs not seen since 2008.
However, all this action was merely window dressing for what happened Friday when unnamed Fed officials were quoted in the WSJ (subscription required) as being uneasy with the pace of future rate hikes and San Francisco Fed President Mary Daly commenting that the Fed should start talking about the end of the rate hike cycle. This was the tonic the markets have been waiting for and the result, a greater than 2.3% rally across the three major indices, was not surprising.
Huge Week Ahead
Not only is it a huge week regarding earnings reports with the likes of Microsoft (MSFT), Alphabet (GOOG), Apple (APPL), and Meta (META) all reporting but on Friday, September Headline and Core Personal Consumption Expenditure (PCE) are released. PCE is the Fed’s preferred measure of inflation, and this will be the last data point they see prior to their meetings on November 1-2.
Economic Calendar
- Monday – October S&P Manufacturing and Services PMI.
- Tuesday – October Consumer Confidence Index. Earnings: Coca-Cola (KO), Microsoft (MSFT), Alphabet (GOOG).
- Wednesday – September New Home Sales. Earnings: Meta (META), Ford (F).
- Thursday – Initial Jobless Claims, Q3 Real GDP (first estimate), September Durable Goods Orders. Earnings: Apple (APPL) and Amazon (AMZN).
- Friday – September Headline and Core PCE.
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October 21 Daily Trading Recap…
Monday – Dow +551 to 30,185 Nasdaq +354 to 10,675, S&P +95 to 3,677, USD10Y +0.5bp to 4.015%
- The October Empire Manufacturing Index was a disaster at –9.1 vs expectations of –5.0 and last month’s 1.5 print. This is the seventh negative print of the year and five of the last six prints have been negative as well, save for July.
- Market observers pointed to Bank of America’s (BAC) earnings, which beat both top and bottom-line estimates and sent the stock soaring 6% on the day, as well as yet another reversal of tax policy coming out of the United Kingdom as reasons for today’s monstrous rally.
Tuesday – Dow +338 to 30,523, Nasdaq +96 to 10,772, S&P +42 to 3,720, USD10Y –1.7bp to 3.998%.
- All eleven S&P sectors traded higher again today, led by Industrials, Materials, and Utilities.
- Goldman Sachs (GS) continued the strong performance of the banks, beating both top and bottom-line estimates and helping send the markets higher for a second consecutive day. GS traded up 2.33% on the day.
- Salesforce (CRM) – Activist hedge fund, Starboard Value LP, revealed a large stake in the company. CRM jumped 4.33% during the regular session.
- Johnson and Johnson (JNJ) beat top and bottom-line estimates but narrowed forward guidance due to caution over a rising dollar. JNJ closed down 0.35% during the normal session.
Wednesday – Dow –99 to 30,423, Nasdaq -92 to 10,680, S&P -25 to 3,695, USD10Y +12.9bp to 4.127%.
- Ten of eleven S&P sectors traded down today, with only Energy posting a positive result.
- The Fed’s September Beige Book survey showed inflation slowly easing, the economy slowly growing, no sign of easing in the labor markets, and fears of recession increasing.
- Earnings: Abbott Laboratories (ABT) fell 6.5% on weakness in their international medical device sales. ABT blamed the strong dollar and supply issues in China for the miss. Netflix (NFLX) doubled their subscriber estimates and beat both top and bottom-line estimates; NFLX traded up 13%.
Thursday – Dow -90 to 30,333, Nasdaq -65 to 10,614, S&P -29 to 3,665, USD10Y +9.9bp to 4.226%.
- Eight of eleven S&P sectors traded down today, led lower by Utilities, Industrials, and Consumer Discretionary.
- Jobless claims fell to 214,000 claims vs 230,000 expected and last week’s revised lower 226,000 print (originally was 228,000). Continuing claims ticked up to 1.385 million.
- October Philadelphia Federal Manufacturing Survey was below expectations at –8.7 vs expectations of –5 but better than last month’s -9.9 print.
- The benchmark 10YR US Treasury yield hit 4.239%, a level not seen since 2008, before closing at 4.226%.
- September Existing Home Sales continued to decline MoM at 4.71 million units vs expectations of 4.7 million but down from last month’s 4.79 million print.
- Earnings: AT&T (T) traded up 7.7% after beating top and bottom-line estimates. IBM (IBM) traded up 4.3% after beating their top and bottom-line numbers. Tesla was down 6.65% after missing their delivery and revenue numbers.
Friday – Dow +749 to 31,082, Nasdaq +245 to 10,859, S&P +87 to 3,752, USD10Y –1.3bp to 4.213%.
- All eleven S&P sectors traded higher today led by Materials, Financials, and Consumer Discretionary.
- A story from the WSJ (subscription required) intimating that some Fed officials are uneasy with the continued pace of rate hikes along with similar comments from San Francisco Fed President Mary Daly sent markets soaring today.
- The Q3 Index of Common Inflation Expectations for 5-10 years was 3% vs last month’s 3.1% print and the 10-year expectation was unchanged from last month’s 2.2% print.
- Earnings: Verizon (VZ) beat top and bottom-line expectations but reported smaller growth in its pre-paid segment; VZ traded down 4.46%. American Express (AXP) beat top and bottom-line estimates, raised its full year forecast and traded down 1.73%. Snap (SNAP) fell 28.21% after missing its revenue estimates.
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.