3 Things… 

1. Equity Trends: Thursday the S&P500 falling again near its June 2022 low, trend is DOWN and 12.31% below its 200-day MA; the NASDAQ gapped down and moving towards its June 2022 low, and is about 15.58% below its 200-day MA, strong DOWN trend; Dow is down 1.42% and 10.8% below its 200-day MA; about 14% of the S&P 500 and 20% of the NASDAQ, respectively, are above their 50-Days; Bulls24:Bears54; VIX 30.72; [1]
2. Bonds: Friday’s jobs numbers showed the U.S. economy added 263,000 jobs in September, slightly below a Dow Jones estimate of  275,000. However, the unemployment rate came in at 3.5%, down from the 3.7% in the previous month in a sign that the jobs picture continues to strengthen even as the Federal Reserve tries to slow the economy with rate hikes to stem inflation.

   “While the data was about as expected, the drop in the unemployment rate is seemingly what the markets are obsessed with because of what it means for the Fed,” said Bleakley Financial chief investment officer Peter Boockvar. “When combined with the low level of initial jobless claims, the pace of firing’s remains muted and this of course gets the Fed all fired up about continuing with its aggressive rate hikes.”

   The falling unemployment rate sparked a jump in rates, in turn weighing on futures. The 2-year year Treasury yield jumped 8 basis points to 4.31%. [2]

3. Sectors: Best 3-month sectors: Energy (+18.45%); Financials (-2.65%); Industrials (-2.71%); Crypto/Bitcoin -1.75%; [3]

This Week’s Quotable

“While the data was about as expected, the drop in the unemployment rate is seemingly what the markets are obsessed with because of what it means for the Fed. When combined with the low level of initial jobless claims, the pace of firing’s remains muted and this of course gets the Fed all fired up about continuing with its aggressive rate hikes.” Bleakley Financial chief investment officer Peter Boockvar, as reported by CNBC Friday. [5]

Recent Highlights

• Wholesale Inventories (10/07 at 10:00 AM EST)
• PPI/Core PPI (10/12 at 8:30 AM EST)
• Crude Inventories (10/12 at 10:30 AM EST)
• CPI/Core CPI (10/13 at 8:30 AM EST)

In the Markets

Wall Street closed lower on Thursday for a second straight session. Market participants are apprehensive that the Fed would stay on course with its aggressive rate hikes, thereby slowing down the economy to the brink of a recession. Hawkish comments from yet another Fed official projected a grim outlook for 2023. All three major stock indexes ended in the red.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) fell 1.2% or 346.93 points to close at 29,926.94. Notably, 25 components of the 30-stock index ended in the red, while four ended in the green and one remained unchanged.

The tech-heavy Nasdaq Composite finished at 11,073.31, declining 0.7% or 75.33 points.

The S&P 500 lost 1%, or 38.76 points to end at 3,744.52. Ten of the 11 broad sectors of the benchmark index closed in the red. The Utilities Select Sector SPDR (XLU), the Real Estate Select Sector SPDR (XLRE) and the Consumer Staples Select Sector SPDR (XLP) fell 3.3%, 3.3% and 1.5%, respectively, while the Energy Select Sector SPDR (XLE) advanced 1.8%.

The fear-gauge CBOE Volatility Index (VIX) was up 6.9% to 30.52. A total of 10.6 billion shares were traded on Thursday, lower than the last 20-session average of 11.7 billion. Decliners outnumbered advancers on the NYSE by a 2.32-to-1 ratio. On Nasdaq, a 1.42-to-1 ratio favored declining issues.

Fed Officials Continue to Signal Further Policy Tightening

Comments from Fed officials continue to project further stringent policy tightening moving into 2023. On Thursday, Chicago Fed President Charles Evans said that it would be safe to assume the Fed’s policy rate going up to 4.5%-4.75% by the spring of 2023 as it bores down on purchasing power to bring down inflation. “We have further to go”, Evans said at a meeting in Illinois. “Inflation is high right now and we need a more restrictive setting of monetary policy.”

Having started late, the Fed has aggressively hiked interest rates to 3%-3.25% in a seven-month period. And yet, the current level is at more than triple its target of 2%. Evans, however, believes that these rate hikes will be slowing down the still strong labor market and push up the unemployment numbers.

On the question of whether the Fed will deliver a fourth consecutive 75 bps rate hike next month, Evans said policymakers will have a discussion on it. However, according to him, policymakers expect to raise the rate another 1.25 percentage points over the next two meetings, based on the median of projections published last month, as the inflation readings have been disappointing.

With jobless claims coming in unexpectedly high, the market had expected a bit more relief from the Fed in terms of direction. But dovish indications are simply not coming in, and any chance of going slow on policy tightening looks unlikely in the near term. Investors, thus, remain apprehensive about the Fed’s claim of a planned soft landing of the economy, and the sessions continue to be choppy. Utilities and real estate declined even further than the last session, as energy remained strong as oil prices rose on the OPEC reducing production.

Consequently, shares of American Tower Corporation (AMT) and DTE Energy Company (DTE) declined 5.2% and 4.7%, respectively, and that of APA Corporation (APA) advanced 4.2%.

Economic Data

The Labor Department said on Thursday that initial jobless claims rose to 219,000, increasing 29,000 for the week ending Oct 1. The previous week’s level was revised down by 3,000 from 193,000 to 190,000. The four-week moving average increased to 206,500, a rise of 250 from the previous week’s revised average of 206,250.

Continuing claims came in at 1,361,000 for the week ending Sep 24, increasing 15,000 from the previous week’s revised level. The previous week’s numbers were revised down by 1,000 from 1,347,000 to 1,346,000. The 4-week moving average came in at 1,370,750, a decrease of 10,250 from the previous week’s revised average. The previous week’s average was revised down by 250 from 1,381,250 to 1,381,000. [6]

Sources: [1][3][4] Stockcharts.com; [2] cnbc.com; stockcharts.com; [5] Stocks fall as investors digest September jobs report, Dow drops 400 points (cnbc.com); [6] Zacks Professional Services, “Today’s Key Market and Economic News” for Friday October 8, 2022;