Markets Focus on Inflation not Middle East

October 16, 2023

Markets Focus on Inflation not Middle East – Oct 12 Market Recap

Indices

Dow 33,670, +263 or +0.78%.
Nasdaq 13,407, -24 or -0.18%.
MSCI EAFE 2021.68, +28.05 or +1.41%.
S&P 4,327, +19 or +0.44%.
USD10Y 4.629%, -15.5bp or -3.24%.
WTI Crude $87.82 bbl, +$5.01 or +6.05%.

With the exception of the rally in crude oil prices, markets shook off the horrors of the Middle East situation and focused on the mixed inflation data published mid-week. The headline Producer Price Index (PPI), which represents wholesale prices, was higher than expected but still lower month-over-month. Core PPI, which excludes food and energy, was flat month-over- month but increased slightly year-over-year. Retail prices, as reflected by the Consumer Price Index (CPI), displayed a similar trend. Headline CPI was slightly higher than expected but fell month-over-month and the year-over-year figure was unchanged from last month. Core CPI was unchanged from last month but fell year-over-year. In addition, Thursday’s Initial Jobless Claims print was unchanged from the previous week. Yet, despite the relatively benign data, the headlines breathily exclaimed that the inflation numbers were hot and that another rate increase may be likely. Markets shrugged it all off and finished relatively flat for the week.

The tenor of the press reports was not reflected in the CME Fed Watch Tool. The probability of another rate hike pause at the Fed’s November meeting rose to 93% vs 72.9% a week ago as did the probability of a pause at the December meeting; from 57.6% a week ago to 69.6% at the time of this writing.

Next Week

Manufacturing data from the East Coast is on deck this week as well as September Retail Sales. Q3 earnings season kicks into full swing with big names reporting from the financial, technology, consumer staples, defense, and transportation sectors. Wednesday is an especially important day with both Tesla (TSLA) and Netflix (NFLX) reporting.

Economic Calendar

Monday – October Empire State Manufacturing. Earnings: Charles Schwab (SCHW).
Tuesday – September Retail Sales. Earnings: Johnson and Johnson (JNJ), Bank of America (BAC), Goldman Sachs (GS), JB Hunt (JBHT), Lockheed Martin (LMT), and United Airlines (UAL).
Wednesday – N/A. Earnings: Netflix (NFLX), Tesla (TSLA), Lam Research (LRCX), Proctor and Gamble (PG).
Thursday – Initial Jobless Claims, October Philadelphia Fed Manufacturing Index, September Leading Economic Indicators. Earnings: American Airlines (AAL), CSX (CSX), Union Pacific (UNP).
Friday – N/A. Earnings: American Express (AXP).

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Oct 12 Daily Trading Recap…

Monday – Dow +197 to 33,604, Nasdaq +53 to 13,484, S&P +27 to 4,335, USD10Y +1.3bp to 4.797%.

All eleven S&P sectors traded higher, led by Energy, Industrials, and Real Estate.
Markets shrugged off the violence in the Middle East, a 4+% jump in oil prices, and a weak opening to finish higher across the board today.

Tuesday – Dow +197 to 33,739, Nasdaq +78 to 13,562, S&P +22 to 4,358, USD10Y -14.2bp to 4.655%.

Ten of eleven S&P sectors traded higher, led by Utilities, Consumer Discretionary, and Materials.
PepsiCo (PEP) beat earnings and revenue expectations and raised its full-year guidance; PEP traded up 1.88% in the regular session.

Wednesday – Dow +65 to 33,804, Nasdaq +97 to 13,659, S&P +18 to 4,377, USD10Y -6.0bp to 4.595%

Eight of eleven S&P sectors traded higher today, led by Real Estate, Utilities, and Communication Services.
The September Producer Price Index (PPI) rose +0.5% vs +0.3% expected and vs last month’s +0.7%. Year-over-year PPI rose to +2.2% vs +2.0% last month.
Core September PPI rose +0.3% vs +0.2% and vs last month’s +0.3% print. Year-over-year core PPI rose slightly to +2.7% vs +2.5% last month.
The minutes of the FOMC meeting showed that a majority of members expect one more rate increase and unanimity that rates would remain at elevated levels until officials are convinced that inflation is headed back to 2%.

Thursday – Dow –173 to 33,631, Nasdaq -85 to 13,574, S&P -27 to 4,349, USD10Y +11.7bp to 4.712%.

Nine of eleven S&P sectors traded down today, led lower by Materials, Utilities, and Real Estate.
Jobless claims were unchanged at 209,000 vs 210,000 forecast and last week’s slightly revised higher print of 209,000 (originally 207,000).
The September headline Consumer Price Index (CPI) was slightly higher than expected at +0.4% vs +0.3% but down vs last month’s print of +0.6%. Year-over-year headline CPI was unchanged from last month at +3.7% vs +3.6% expected.
The September Core CPI was unchanged from last month at +0.3% and in line with expectations. Year-over-year Core CPI fell to +4.1%, in line with expectations, but down from last month’s +4.3% print.
Delta Air (DAL) beat earnings expectations on strong international demand but slightly missed their earnings expectations; DAL traded down –2.31% in the regular session.

Friday – Dow +39 to 33,670, Nasdaq -166 to 13,407, S&P -21 to 4,327, USD10Y –8.3bp to 4.629%.

Six of eleven S&P sectors traded down, led lower by Technology, Consumer Discretionary, and Communication Services.
Preliminary October Consumer Sentiment was well below expectations at 63 vs 67.4 expected and vs 68.1 last month.
Earnings: JP Morgan Chase (JPM) beat revenues and traded up +1.5% post-close. Wells Fargo (WFC) beat revenues and earnings expectations and traded up 3.07% in the extended session. Blackrock (BLK) beat their earnings expectations, missed revenue expectations and traded down -1.34%. Citigroup (C) beat revenues and traded mostly flat through the regular session.

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.