3 Things… 

1. Equity Trends: S&P500 trading around 3600– near its June 2022 low, trend is DOWN and 13.46% below its 200-day MA; the NASDAQ trading around 10,400–well below its June 2022 low, and is about 17.71% below its 200-day MA, strong DOWN trend; Dow is trading around 29,700 and 9.64% below its 200-day MA. About 13% of the S&P 500 and 18% of the NASDAQ, respectively, are above their 50-Days; Bulls20:Bears56; VIX 32.95 after popping to 34.53 Wednesday; [1]
2. Bonds: 10Y 3.952%; 2Y 4.504%; 30Y 3.933% [2]
3. Sectors: Best 3-month sectors: Energy (+21.79%); Financials (+2.19%); Industrials (-0.18%); Crypto/Bitcoin -0.06%; [3]

This Week’s Quotable

“With core CPI still moving in the wrong direction and the labor market strong, the conditions are not in place for a Fed policy pivot, which would be one of the conditions for a sustained rally in the equity market. Moreover, as inflation remains elevated for longer and the Fed hikes further, the risk increases that the cumulative effect of policy tightening pushes the US economy into recession, undermining the outlook for corporate earnings.” UBS global wealth management chief investment officer Mark Haefele in a Friday note, as reported by CNBC Friday. [5]

Recent Highlights

• Retail Sales remained unchanged (10/14)
• Export Prices/Import Prices fell 0.8%/1.2% (10/14)
• CPI/Core CPI rose 0.4%/0.6% (10/13)
• Initial Claims increased to 228,000 (10/13)

In the Markets

U.S. stock markets closed sharply higher on Thursday, rebounding from losses made early in the session. Bank and energy stocks led this historic rebound from levels seen during the 2020 pandemic months. All three major stock indexes ended in the green.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) climbed 2.8%, or 827.9 points, to close at 30,038.72. Notably, all the components of the 30-stock index ended in the green.

The tech-heavy Nasdaq Composite finished at 10,649.15, rising 2.2% or 232.1 points due to the strong performance of large-cap technology stocks.

The S&P 500 gained 2.6% or 92.9 points to close at 3,669.91, ending a six-day losing run. Thursday marked the fifth-largest positive turnaround in the index’s history. All the 11 broad sectors of the benchmark index closed in the green. The Financials Select Sector SPDR (XLF), the Energy Select Sector SPDR (XLE) and the Technology Select Sector SPDR (XLK) rose 4.1%, 4.1% and 3.1%, respectively.

The fear-gauge CBOE Volatility Index (VIX) was down 4.9% to 31.94. A total of 13.4 billion shares were traded on Thursday, higher than the last 20-session average of 11 billion. Advancers outnumbered decliners on the NYSE by a 2.24-to-1 ratio. On Nasdaq, a 2.10-to-1 ratio favored advancing issues.

High CPI Number Garners Mixed Reaction

The consumer price index (CPI) increased more than expected in September as rents hit their highest level since 1990 while the cost of food also rose. CPI increased 0.4% for the month and 8.2% year over year. The core CPI number, which excludes food and energy prices, advanced 0.6%. These numbers reinforced expectations that the Fed will deliver the fourth straight 75 bps interest rate hike next month, with the possibility that it may go up to 100 bps, and the morning session saw the brutal sell-off continuing.

However, with the year-over-year headline inflation decelerating for the third month in a row and the Fed’s likely continuation of its steep rate hikes already priced in, the market staged a remarkable comeback to end the day sharply in the green. Investors also bet on the inflation numbers peaking soon. The Dow Jones Industrial Average saw a historic turnaround of 1300 points after being down 500 points early in the session.

Bank and Energy Stocks Lead the Way

Large banks with earnings slated to release starting Friday were among the chief drivers of optimism in the session. In a high interest rate environment, bank stocks do well as their profitability increases manifold. Investor mood was upbeat on Thursday as they eagerly awaited the quarterly earnings report and profitability outlook from the financial sector led by banks.

Crude prices rose for the first time in the week as global supply concerns resurfaced and the dollar fell. This led to energy stocks becoming the major market movers on Thursday. WTI crude settled up $1.84, or 2.1%, at $89.11/barrel, having fallen almost 7% in the week through Wednesday. Brent Crude settled up $2.12, or 2.3%, to close at $94.57/barrel.

Consequently, shares of JPMorgan Chase & Co. (JPM) and Chevron Corporation (CVX) gained 5.6% and 4.9%, respectively.

Economic Data

The Labor Department said on Thursday that initial jobless claims rose to 228,000, increasing 9,000 for the week ending Oct 8, from the previous week’s unrevised level. The four-week moving average increased to 211,500, marking a rise of 5,000 from the previous week’s unrevised average of 206,500.

Continuing claims came in at 1,368,000 for the week ending Oct 1, increasing 3,000 from the previous week’s revised level. The previous week’s numbers were revised up by 4,000 from 1,361,000 to 1,365,000. The 4-week moving average came in at 1,363,750, a decrease of 8,000 from the previous week’s revised average. The previous week’s average was revised up by 1000 from 1,370,750 to 1,371,750.

According to a government report, for the week ending Oct 7, 2022, U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 9.9 million barrels from the previous week. [6]

Sources: [1][3][4] Stockcharts.com; [2] cnbc.com; stockcharts.com; [5] Stocks give up early gain and slide on Friday as market volatility continues (cnbc.com); [6] Zacks Professional Services, “Today’s Key Market and Economic News” for Friday October 14, 2022;