Weekly Update 10/31/2023
A Spooky Market!
Stocks Head For Third-Straight Loosing Month
Fed Reserve Meeting: Strong Economy, Likely No Rate Hike
Economies around the world headed towards Recession
NVDIA’s $5B China Order in Limbo
Back From The Dead?? Bitcoin “Golden Cross” Starts to Form
Weekly Meetings:
INVESTMENT CLUB THURSDAYS 6 PM (BPC188)
INVESTMENT FUND THURSDAYS 7 PM (BPC188)
—Market Madness—
Spooky or Spooktacular? S&P 500 rises Tuesday, but stocks head for third-straight losing month
Stocks traded higher Tuesday, as Wall Street tried to close out a dismal month of trading — that saw Treasury yields surge to levels not seen in more than 16 years — on a high note.
The Dow Jones Industrial Average was up by 131 points, or 0.4%. The S&P 500 was higher by 0.67%, while the Nasdaq Composite added 0.52%.
Real estate and financials outperformed in the S&P 500, with the sectors higher by more than 1%, each. Notably, however, some mega-cap tech stocks weighed on the index. Alphabet and Meta Platforms shares were lower. Nvidia declined by about 1%.
The Cboe Volatility Index (VIX) dropped to an 18 handle, below the long-term average of roughly 20. A higher VIX level can point to greater uncertainty in markets.
Earnings season continued Tuesday. Caterpillar slid more than 6% after the construction equipment maker said its fourth-quarter revenue would only be “slightly” higher than the year-ago period. JetBlue shares dropped more than 10% after the airline’s third-quarter results missed expectations on the top and bottom lines.
Stocks are headed for their third-straight losing month. The Dow and the S&P 500 are down more than 1% and 2%, respectively. This marks the first three-month losing streak for both indexes since March 2020. The tech-heavy Nasdaq has declined more than 2% in October, also on pace for its third consecutive negative month.
October’s losses come amid a rapid rise in Treasury yields. This month, the benchmark 10-year U.S. Treasury yield breached the key 5% level for the first time since 2007. Market participants attribute the rise to several factors, including concern the Federal Reserve will keep interest rates higher for longer.
The Fed is set to release its next decision on interest rates on Wednesday. Fed funds futures pricing suggests a roughly 99% probability that the central bank will keep rates at current levels, according to the CME FedWatch Tool.
“If the Fed comes out and says they’re probably done for the year, gives hints that they’re feeling more dovish, that could be one thing that really helps,” said Ross Mayfield, investment strategy analyst at Baird. “But I do think you need some downward pressure on rates to actually get a more sustainable move in stocks.”
Historically speaking, November is a strong month for markets, and traders are hoping seasonal tailwinds will be supportive of a year-end rally. However, they expect a peak in bond yields will be needed before they see some relief in the equity market.
Zillow slides after jury rules against realtors
Shares of Zillow were down more than 6% in afternoon trading after a Missouri jury ruled against the National Association of Realtors and brokerage firms in a collusion case.
The National Association of Realtors said in a statement that it plans to appeal the ruling.
Shares of Zillow were higher for the day before news of the ruling broke.
Stocks at session highs to start final hour of trading
Stocks were trading at session highs Tuesday shortly into the final hour of trading. The Dow Jones Industrial Average was up by 131 points, or 0.4%. The S&P 500 was higher by 0.67%, while the Nasdaq Composite added 0.52%.
Government shutdown could damage U.S. credit reputation, says economist
A potential U.S. government shutdown is currently the biggest threat to the economy, according to The Washington Center for Equitable Growth interim chief economist Jonathan Fisher. Congress now has until Nov. 17 to reach an agreement on the federal budget.
Although Goldman Sachs estimated that a shutdown would have a limited short-term impact on economic growth, Fisher believes the bigger issue may by the potential damage it poses to the U.S.’s credit reputation.
“The last fight over the debt ceiling led Fitch to downgrade the trustworthiness of U.S. credit, and a repeat of the May showdown could snowball further from there. Downgrading the credit trustworthiness further could raise the interest rates the U.S. has to pay to issue Treasury bonds, and higher rates raise the cost of borrowing, which further constrains the U.S. budget,” Fisher said.
The risk of another breakdown in budget negotiation talks should concern the Federal Reserve, he added. According to Fisher, another budget impasse could increase business and consumer uncertainty, which would slow down the economy.
Energy leads October’s sector losses
The energy sector experienced the biggest month-to-date sector losses in the S&P 500 despite a slight uptick after the start of the Israel-Hamas war, down 6.3% in October. Chevron and Exxon Mobil fell 14.1% and 10.1%, respectively after announce both announcing mega-mergers.
Meanwhile, consumer discretionary stocks also had a difficult month, falling 4.7%. Aptiv, Pool, eBay and Domino’s Pizza all lost 11% and more.
The only positive sector for the month was utilities, which added 1.4%. NRG Energy jumped nearly 10%, followed by Public Service Enterprise Group rallying 8.6%.
Billionaire real estate investor Don Peebles talks commercial real estate’s ongoing struggles
It’s a spooky Halloween for markets. Here’s why:
Markets soared on Monday, just one day after the S&P 500 index landed in correction territory, ending the prior week 10% off its July zenith.
But Monday’s optimism could be short lived. Traders face a multitude of potentially scary market surprises lurking in the shadows this Halloween week.
Wall Street is clearly spooked: The S&P 500 is still down by about 2.9% for October, and pacing toward its third negative month in a row. It would be the longest losing streak since the start of the pandemic in 2020.
The Dow is also on pace to end the month 1.6% lower. The Nasdaq Composite is 2.7% lower.
CNN’s Fear and Greed Index, which tracks seven indicators of market sentiment in the United States, remained in the “fear” zone despite Monday’s market rally.
Here’s what’s causing the market fears:
High bond yields
Surging yields have contributed to one of the worst periods for bond market performance in history and pressured equity markets.
10-year Treasury yields are flirting with 5% for the first time since 2007, before the global financial crisis.
Although rates have retreated a bit from recent highs, it’s clear that we’re in the middle of a paradigm shift, said Rob Almeida at MFS Investment Management. It’s unlikely that yields will return to pre-pandemic lows, he said.
For American consumers, an elevated 10-year Treasury yield means financial pain, because it serves as a benchmark rate for a variety of consumer borrowing. That means more costly car loans, credit card rates and even student debt. It also means more expensive mortgage rates.
Like an evil witch, yields have mounted “a broom to the moon,” said Jason Pride, chief of investment strategy & research at Glenmede.
Wall Street is clearly spooked: The S&P 500 is still down by about 2.9% for October, and pacing toward its third negative month in a row. It would be the longest losing streak since the start of the pandemic in 2020.
The Dow is also on pace to end the month 1.6% lower. The Nasdaq Composite is 2.7% lower.
CNN’s Fear and Greed Index, which tracks seven indicators of market sentiment in the United States, remained in the “fear” zone despite Monday’s market rally.
Here’s what’s causing the market fears:
High bond yields
Surging yields have contributed to one of the worst periods for bond market performance in history and pressured equity markets.
10-year Treasury yields are flirting with 5% for the first time since 2007, before the global financial crisis.
Although rates have retreated a bit from recent highs, it’s clear that we’re in the middle of a paradigm shift, said Rob Almeida at MFS Investment Management. It’s unlikely that yields will return to pre-pandemic lows, he said.
For American consumers, an elevated 10-year Treasury yield means financial pain, because it serves as a benchmark rate for a variety of consumer borrowing. That means more costly car loans, credit card rates and even student debt. It also means more expensive mortgage rates.
Like an evil witch, yields have mounted “a broom to the moon,” said Jason Pride, chief of investment strategy & research at Glenmede.
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Higher yields on Treasuries put pressure on equity markets. Additionally, he wrote, “elevated yields are economically restrictive for businesses, as returns on new projects and expansions must be sufficient to cover the increased cost of funding.”
The Fed
The Federal Reserve will announce its next interest rate decision Wednesday, Nov 1.
Inflation has begun to stabilize, with annual consumer price growth falling to 3.7% from the 9.1% high it hit last year, but the labor market has remained stubbornly resilient.
The majority of investors don’t believe the Fed will raise rates this week, but until the labor market has cooled considerably more and inflation rates drop back to the Fed’s 2% target, the option of future rate hikes remains on the table, haunting investors.
Mixed economic data has left the Fed in a holding pattern, said Erik Weisman, chief economist at MFS Investment Management, and so it’s unlikely investors will hear anything this week that leaves them satisfied.
“While the market would be delighted to learn something new concerning the expected timing and scope of future rate cuts or the ‘end-game’ for quantitative tightening,” he said, “this meeting is unlikely to provide much illumination on these fronts.”
Geopolitical strife
The Israel-Hamas war, which began in early October, initially rattled global financial markets, sending stocks tumbling, the Israeli shekel sliding and oil prices climbing.
Although immediate worries appear to have subsided, investors remain on edge. A prolonged war could drive prices higher and hurt the global economy.
“While geopolitics typically has a short-lived direct market impact, the indirect impacts via inflation and economic growth can be more persistent,” said Seema Shah, chief global strategist at Principal Asset Management.
Continuing war between Russia and Ukraine and growing tensions between the US and China are also spurring fear among investors.
Oil prices fell on Monday but analysts at LPL Research wrote in a note on the same day that “the current geopolitical landscape is as dangerous as it has been in decades, and the risk of a spike in oil prices has increased.”
The note echoes the warnings issued by JPMorgan Chase CEO Jamie Dimon during his company’s earnings call earlier this month. “Now may be the most dangerous time the world has seen in decades,” he said.
Mixed tech earnings
Investors will pore over Apple’s third-quarter earnings report on Thursday for any information about the outlook for Big Tech, especially after tech stocks have had a decidedly mixed bag of earnings so far this quarter.
Amazon was a huge winner. The e-commerce giant reported revenue last week of $143.1 billion for the quarter ending in September, marking a 13% increase from the same period last year and beating analysts’ estimates.
The company reported quarterly profits of $9.9 billion, also beating estimates.
But others weren’t so lucky.
—CRYPTO CULTURE—
‘Golden cross’ starts to form as bitcoin price eyes $50,000 breakout
The bitcoin market continues to advance toward its next bull market as the asset forms a “golden cross,” a financial chart pattern created by the short-term and long-term moving averages.
“If you’re looking at charts, charts are indicating good things,” George Tung of TheStreetCrypto reported in the video above.
Perspective: This current bitcoin price chart, with BTC sitting at around $34,000 after hitting near-term price highs in the last two weeks, could be signaling more significant gains around the corner. In the past, similar conditions have driven price breakouts.
“On a daily chart, golden and death crosses sometimes take a long, long, long, long time to happen,” Tung said. “And after they happen, either very good or very bad things happen… Back in March or February 2022, is when we formed that death cross, and we did not get out of it for an entire year… And when we broke through, that’s when it indicated we were out from bottom.”
And, in price action that mimics previous cycles, bitcoin’s current golden cross prove to be hugely significant.
“Now we have come full circle (with this) golden cross, and this one may last all the way until 2025,” Tung said. “This one could go all the way. We may not have any more stops until the end of 2025. Golden crosses are good, two moving averages, a shorter one and a longer one … this is very good.”
More details: In analyzing today’s bitcoin market, Tung pulled up another chart, demonstrating the “bases” being formed by BTC.
“According to this, the next base is going to be quite high,” he said. “It’s projecting anywhere from $50,000 to $70,000, and that could be by the end of this year. If we do get a spot bitcoin ETF approval sometime in November, I have no doubt bitcoin can skyrocket upwards towards the 40s, and we may end up in the 50s by the end of the year.”
The context: Bitcoin analysts are putting the price chart in context of increasing institutional interest, underscored by multiple applications to offer a spot bitcoin exchange-traded fund (ETF), currently under review by regulators.
As market metrics and qualitative prospects converge, optimism for a crypto bull run is growing.
“All the markets, they will be paying attention and they will feel the FOMO,” Tung concluded. “The FOMO may kick in even in December this year.”