Searching for a Pivot

Regaining ‘Some’ Losses:

U.S. equity futures are up 2.50% to 3.0% as of this writing this morning regaining some of Friday’s losses. Friday looked to our investment team like forced UK pension fund margin selling out of Europe at the end of last week.

In total, the results last week were a mixed bag:

  • the Dow +1.2% (posting back-to-back weekly gains for only the 4th time in 2022)
  • S&P 500 -1.6%, and NASDAQ -3.1%.
  • So far this morning, Treasury yields are down as much as 7.1 bps for 7-year bonds as 10-year yields drop -6.6 bps back under 4% to 3.953%. These are sharing in a global fixed-income rally after the U.K. government announced further policy shifts. The drop in yields erases part of last week’s selloff which ranged from +11 bps (5s and 10s) to +18 bps (2s).
  • The U.S. dollar is weaker this morning after appreciating 0.7% last week.

The Consumer Price Index (CPI) and Producer Price Index (PPI) reports were both higher than expected with a few promising data points in areas that usually lead. Retail sales were stronger-than-expected in September. The Dow, the Nasdaq, and the S&P 500 each hit fresh two-year lows on Thursday in the wake of the CPI report, but the indexes closed the week off their lows.

164453235

Volatility has remained high across financial markets all year with stocks, bonds, currencies, and commodities all looking for direction amid monetary and geopolitical uncertainty. The Fed is still sticking to its aggressive tightening plans, raising interest rates at the fastest pace in 50 years. The dollar’s push to multi-decade highs has created a hostile environment for risk assets in 2022.

What is needed for this dynamic to reverse? Slower rate hikes, a peaking dollar, and a peaking of real interest rates on the back of the Fed seeing the real-time inflation data heading lower (rents, food prices, wages, and job demand).

Wage growth has slowed to 5.0% y/y, while job momentum has peaked as there is a sharp pullback in job openings (JOLTS). Real-time housing prices are heading materially lower.

So far, the Fed doesn’t care.

Interesting Reads:

  • See the New York Times story: “China’s Leader Strikes a Defiant Note, Warning of ‘Stormy Seas’: Xi Jinping defended his hard-line reign on Sunday, presenting himself to a congress of China’s ruling elite as the leader whose tough policies had saved the nation from the ravages of the pandemic and was now focused on securing China’s rise amid multiplying global threats.”
  • Insana: Signs emerge that the big drivers behind this hot inflation reading are starting to cool

Stock Talk Podcast: What Could Go Right?

News Or Noise: Midterm Election Seasonality – Yes, it’s been a Thing https:

 

Disclosure

This content contains general information and expresses the views of Oak Harvest Investment Services. All data, articles, and information cited are believed to be reliable at the time of creation; however, Oak Harvest does not warrant any information contained herein to be correct, complete, accurate, or timely.

Oak Harvest provides links to content produced by other websites that OHFG does not control, and Oak Harvest does not necessarily approve or endorse such content and does not guarantee its accuracy. Nothing in this content constitutes personalized investment advice. Any charts, indicators, or graphs included or referenced in this content have limitations, and no such material is able, in and of itself, to provide a buy or sell recommendation for any security. Strategies and ideas discussed may not be right for you, and views and opinions expressed may change without notice. The strategies and ideas discussed will not apply to all client accounts or portfolios.

Nothing in this content constitutes a recommendation, or an offer, or a solicitation to buy or sell securities. Oak Harvest makes no assurance as to the accuracy of any forecast or projection made. Not all past forecasts or projections have been accurate. No current or future forecasts and projections are guaranteed to be accurate.  And future forecasts may not be as accurate as any forecasts discussed. Indexes like the S&P 500 are not available for direct investment and your results will differ. Past performance is not indicative of future results. Investing involves the risk of loss.