(Justin Vaughn, Editor, Options Trading Report)
Markets remained softer as investors and traders tip-toed with caution as the week opened. Hanging fears persisted as anticipation gripped the indices, awaiting another round of tightening. The indexes opened the shortened week with much apprehension: the energy stalemate in Europe (and around the world) and the continued Fed policy of tightening, all weighing heavily as the reality is getting ‘real.’ After two months of somewhat reassuring markets upticks, with significant stock appreciation. September turned negative. Any thoughts of a ‘fall’ resurgent ‘bull’ developing, were snuffed as indicated by the whip-sawed indices. Even Europe is tagging along, with major concerns about the run-away-inflation as they (The U.K.) battle a rampart stubborn 10% inflation rate. Concerns of shortages of natural gas add to their woes. “As pressure builds on companies and consumers and the downturn deepens, that’s going to weigh on stock prices,” said Susannah Streeteer, a senior investment and market analyst at Hargreaves Lansdown. She adds, “There is still some way to go with falling stocks, just given how high prices climbed during the pandemic.” On Wednesday, the general consensus was that the Fed would raise rates again, 0.75 points. Even with that conjecture, stocks reacted positively on Wednesday. Interestingly, the Nasdaq Composite reversed a seven day period of dropping, giving investors and traders a renewed confidence, if just short-termed. Even oil surprised the markets, as the price-per-barrel hit the lowest level in six months. The 10-year treasury yield declined to 3.264%, down from 3.339% on Tuesday. Mr. Powell reiterated again Wednesday, “We will keep at it until we are confident the job is done,” a resolution in most every speech and comment. Traders and investors can certainly have no question of his direction and conviction.
Where is The Rain… Drought conditions are overwhelming many commodities creating shortages, driving wholesale and retail prices up beyond imagination. Corn, soybeans and wheat are accelerating to unheard of levels. The bread-baskets of the U.S., South Dakota, North Dakota, Nebraska, Iowa, Kansas, and Oklahoma are currently suffering severe drought conditions, with yields down 13% to 26%. Stifling prolonged heat has affected crops early, with damage already done, as farmers scramble to move irrigation pipes field to field to salvage what’s left for harvest. Even with massive irrigation now, crops are stunted and production is severely affected. Exacerbating the drought condition henotesre, the Russian invasion of the Ukraine has significantly affected crop harvests, with very low shipments of wheat have taken place. Ukraine is one of the world’s biggest grain producers, now a fraction of other years. If weather conditions persist past this summer, estimates by ‘The National Oceanic and Atmospheric Administration notes that the La Nina climate conditions could impact weather next year (2023) negatively, 60%.
Credit Cards..the plastic avenue is once again the dynamic pocket card, giving buyers majicial power… .and debt. After a two and half year consumer moratorium, their use is heating up. Balances are higher than ever, as users are unleashing their buying power. Average credit card debt in 2021 was $10,000, and today it is over $14,000. Debt, a two-edged sword, is averaging over 17%, strapping the user for longer-term pay-offs.
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RUMBLINGS ON THE STREET
Florian Ielpo, head of macro at Lombard Odier Investment Managers, WSJ “We’re coming from a world where people were looking for a Fed pivot, but they got a pivot in the wrong direction. We are not defensive yet, but our exposure remains cautious.”
Clara Cheong, a global market strategist at JPMorgan Asset Management, WSJ “The market kind of got ahead of itself over the last three, four weeks or so… in terms of pricing in a possible Fed pivot to a more dovish stance.”
Lisa Bielfuss, writer, Barron’s, THE ECONOMY, Barron’s “At this time, the forces working against the Fed outweigh those moving in the right direction. They are all the more reason to believe Powell when he says that faking to fix inflation isn’t an option, and they are reasons to believe policy might be even more painful that it would otherwise have to be.”
Amit Daryanani, Evencore ISI Analyst, Barron’s “Sports are one of the last holdouts of the world of scheduled content with market appeal and significant advertising potential,” observes Mr. Daryanani.