The Asset Guidance Group Weekly Update For the week ending November 4, 2022

3 Things… 

  1. Equity Trends: S&P500 is trading between its 20-day and 50-day after falling through the latter Wednesday this week, trend continues to be DOWN and about 7.74% below its 200-day MA; the NASDAQ is trading at the lower end of its expected trading range and is about 14.8% below its 200-day MA, strong DOWN trend remains intact; Dow has a weak UP trend and is using its broken out above 32,000 and is 0.12% below its 200-day MA which is now serving as resistance. About 60% of the S&P 500 and 39% of the NASDAQ, respectively, are above their 50-Days; Bulls31:Bears33; VIX 24.17 [1]
  2. Bonds: 10Y 4.14%; 2Y 4.71%; 30Y 4.18%; 3-Mo 4.25% [2]
  3. Sectors: Best 3-month sectors: Energy (+29.57%); Financials (+2.03%); Healthcare (-0.11%); Crypto/Bitcoin +4.75%; [3]

This Week’s Quotable

“…[the economy is feeling the impact of Federal Reserve interest rate hikes] into a generationally levered system with high inventories and slowing demand. In other words, there could be more downside ahead. …The speed of rate hikes has caused more than 75% of possible U.S. Treasury (UST) Yield Curves to invert, and it would be historically unique over the last 50 years to not have a recession after more than 55% were inverted. To that end, we continue to believe the S&P 500 (SPX) has yet to see ‘the’ bottom of the cycle.” Tony Dwyer, the firm’s chief market strategist, wrote in a note Friday, as reported by CNBC Friday. [5]

Recent Highlights

  • Nonfarm Payrolls increased by 261,000 (11/04)
  • Unemployment rate increased to 3.7% (11/04)
  • ISM Services Index decreased to 54.4 (11/03)
  • Factory Orders increased 0.3% (11/03)

In the Markets

U.S. stocks ended lower for the fourth-straight session on Thursday, a day after the Fed announced another 75-basis point interest rate hike and also signaled that it has no plans of slowing down on its aggressive rate-hike policy anytime soon. All three indexes ended in negative territory.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) slid 0.5% or 146.51 points to close at 32,001.25 points, after declining as much as 420 points at its trading low.

The S&P 500 declined 0.5% or 39.80 points to finish at 3,719.89 points. Tech and communication services stocks were the biggest losers.

The Communication Services Select Sector SPDR (XLC) fell 2.5%, while the Technology Select Sector SPDR (XLK) lost 2.9%. The Energy Select Sector SPDR (XLE) gained 1.9%. Seven of the 11 sectors of the benchmark index ended in negative territory.

The tech-heavy Nasdaq slipped 1.7% or 181.86 points to end at 10,342.94 points.

The fear-gauge CBOE Volatility Index (VIX) was down 2.17% to 25.30. Decliners outnumbered advancers on the NYSE by a 1.75-to-1 ratio. On Nasdaq, a 1.50-to-1 ratio favored declining issues. A total of 11.81 billion shares were traded on Thursday, higher than the last 20-session average of 11.63 billion.

Fed’s Stance Weighs on Markets

Trading remained volatile on Wednesday after the Fed announced yet another highly anticipated 75-basis interest rate hike to take its benchmark interest rate target to the range of 3.75% to 4%. This saw the S&P 500 and Nasdaq touching their lowest levels since Oct 21 and Oct 14, respectively. The Dow also hit its lowest level since Oct 26 but managed to pair the losses.

The 75-basis point rate hike was expected but the investors were actually waiting for Fed Chair Jerome Powell’s comments as they were hopeful that the central bank might go slow on its pace of rate hikes in the coming months as economic data released last week hinted at inflation easing.

However, their hopes were dashed as Powell’s hinted that it is too premature to think about pausing its aggressive rate hikes. Instead, Powell hinted at continuing with its aggressive rate hike stance and that the Fed’s benchmark rate may require topping the level of core inflation to get complete control of surging inflation.

Powell’s comments now suggest that the Fed might push its benchmark interest rate target above 5% and then leave it there for some time for core inflation to come down to its target 2%. This means the Fed is likely to not only continue to hike rates frequently but also would go for steep hikes. Powell’s Wednesday comments continued to weigh on investors’ sentiments on Friday taking a toll on stocks.

Treasury Yields Spike

Treasury yields rose once again following the announcement of the new rate hike and Powell’s comments. The 10-year Treasury yield jumped 9 basis points to reach 4.15%, while the 2-year Treasury yield rose 13.1 basis points to 4.699% to its highest level since July 2007.

Tech stocks were the biggest casualties on Thursday. Shares of Apple, Inc. (AAPL) declined 4.2%, while Meta Platforms, Inc. (META) fell 1.8%. 

Also, semiconductor stocks were a big drag on Nasdaq with shares of QUALCOMM Incorporated (QCOM) ending 7.7% lower despite the company beating on both earnings and revenues estimate. Qualcomm reported fourth-quarter fiscal 2022 earnings of $3.13 per share, beating the Zacks Consensus Estimate of $3.12 per share.

Economic Data

The Labor Department said on Thursday that jobless claims totaled 217,000 for the week ending Oct 29, declining 1,000 from the previous week’s revised level of 218,000. The four-week moving average decreased to 218,750, a decrease of 500 from the previous week’s revised average of 219,250.

Continuing claims came in at s 1,485,000, an increase of 47,000 from the previous week’s unrevised level of 1,438,000. The 4-week moving average was 1,417,500, an increase of 30,000 from the previous week’s unrevised average of 1,387,500.

In other economic data released on Thursday, the ISM services sector Purchasing Managers’ Index came up with a reading of 54.4% in October, slipping from September’s 56.7%.

In a separate report, the Census Bureau said that new orders for U.S.-made factory goods increased 0.3% or $1.5 billion to $551 billion in September. This follows a 0.2% increase in August. [6]

Sources: [1][3][4] Stockcharts.com; [2] cnbc.com; stockcharts.com; morningstar.com [5] Why the ultimate low in stocks not in yet, according to this market strategist (cnbc.com); [6] Zacks Professional Services, “Today’s Key Market and Economic News” for Friday November 4, 2022; 

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