Monday markets taking the long way home today, closing lower in the red than where we started this am, despite many efforts to emerge higher mid-session. The shakeout following last Thursday’s rumbling CPI print continues with the question mark of a rally boiling under the surface into year-end as the pressure not to underperform the benchmarks will weigh on all when the clock strikes 12 in the New Year.
Yesterday’s momentum continued into today, with markets finishing up strong once again and closing out the best week since June. The optimism was a shampoo effect from yesterday’s inflation number which showed prices are cooling — but for the record the number is still 7.7%! This morning started with University of Michigan consumer sentiment, which came in at 54.7 below estimates (59.5) with one-year inflation matching estimates at 5.1%.
Ok, all better then? Turns out Charlie Brown can kick the football after all. Never has YOY inflation of 7.7% looked so good. In 6 of the last 7 CPI readings, the annual rate came in ABOVE estimates and so investors were reticent for good reason heading into today. It led to some pessimistic positioning as opposed to CPI’s past. So when the under came in and by a fair amount, the pressure valve exploded. Inflation may be cooling but the market was suddenly red hot.
Knowing that stocks go up after elections, regardless of the party in power, should have kept investors tuned in to earnings and macro data today. But, as we all know markets absolutely despise uncertainty—the “not knowing” causes sentiment to falter. After 3 days rallying and an historic surge in October, markets staged a meaningful pullback, while waiting on just three states to determine whether the US would swing red or blue. But the election wasn’t the only show in town.
What began as churn and chop and drifting higher, turned to something that felt much more like whiplash. Although closing higher on the day, US equities were jolted lower midday as crypto markets faltered in an unsuccessful attempt to hold equities under with them. The tug-of-war was first from the side of US midterm elections anticipation, hopeful equity markets, USD relief, US Treasury yield declines/stabilization, commodity/precious metal rally (ex-crude), China re-open optimism- all contributing to a continued market rally of the past few days.
After last week’s fireworks between the Fed and its path, with the additional overlay of earnings, investors took a cautious start to this week. Midterm elections are tomorrow, and the Bond market has a short week with a holiday on Friday (sorry equities), plus there was a lack of earnings and economic data pre-open to generate a direction to start. But after trading sideways to start the day, broader indexes found some footing and rallied, closing with a second day of solid gains.
Tuesday gave the markets a JOLTs that the job market was not rolling over yet. With a Fed furiously intent on dropping inflation, that datapoint sent some shockwaves to those that were anticipating a dovish message via Powell Wednesday. While he did say they would take the “cumulative effects” into account, Powell also said they have “some ways to go”. Cue another week of declines for the broader indexes (SPX -3.3%, RTY -2.7%, CCMP -5.6%) as traders readjust their books to the higher for longer outlook.
A lackluster [ /ˈlakˌləstər/adjective/ lacking in vitality, force, or conviction; uninspired or uninspiring ] session in US equities today after yesterday’s proverbial punch to the market’s gut. Early follow-thru from global markets found the US initially under heavier pressure in the am, drifting marginally higher into the afternoon and then again a touch lower into the close. All action maintained in the red today, however.
People were looking for the pivot today, after the most aggressive tightening in over 40 years. But this was not the pivot. Investors watched markets ramp up in a straight line as the initial read on The Fed announcement leaned dovish. But, stocks came right back down in a straight line as Jerome P continued hawk-king. The longer he spoke, the harder the market dove (not a pun). Cries of “someone get him off stage!” were heard across Wall Street.
It is a new month and markets were feeling good to start. October had a monthly gain for the first time since July, and expectations for a slightly dovish Fed have been growing since the WSJ article and Daly “step down” comment 1.5 weeks ago. But with only one day until the big reveal, US economic data once again showed resiliency, especially in the employment arena.