Challenging Inflation – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

The market soared Friday (10-28) as investors and traders showed confidence, with the Dow Jones Industrial Average surging up 800 points, finishing the week on a ‘high note.’ The tech heavy Nasdaq Composite soared a whooping 2.9%, up 309.78 points. The solid S&P 500 was up 2.5% or 93.76 points, with all sectors of the average contributing. All in all a terrific finish for the week, and much needed market booster. These strong numbers were not powered by the popular equities that pushed the market to its highest peaks, but by value stocks and ‘blue chippers.’ The biggest movers were in three sectors: financials, real estate and consumer staples, with these stalwarts, many of which showed good to exceptional earnings, recently reporting. As investors evaluate their future strategies, preservation of capital, in this cyclical time is paramount. Bonds look more inviting as the market spins. Each rate hike by the Fed endorses stronger attention to those markets of safe haven.

Stocks faltered on Monday, abruptly changing course from Friday’s surge. Concerns about inflation, the tightening and incoming earnings reports have again spooked the indices. Interestingly, the Dow Jones has gained 13.96 for the month (October), the best since the month of January 1976, a remarkable gain in the troubled inflationary times mired with many ‘side attractions.’ All indexes were weaker at Tuesday’s close, the second down session, as prospects that the Labor Market is strong and maintaining ‘steam.’ Some investors are holding to the likelihood that a ‘weaker’ jobs report would spur the Federal Reserve to consider reducing its interest rate hikes. Not so as the Labor Market continues to add jobs and boost wages.. New Surveys show that demand for ‘more’ jobs actually increased in September. Investors and traders are concerned that a softening in the job market would contribute to reducing inflation, however that is not happening now and into the near term. “They, the Fed, want to slow down the labor Market, they want to slow down hirings so demand drops in the economy which will help inflation,” said Anthony Saglimbere, chief market strategist at Ameriprise Financial in Troy, Michigan.

As expected on Wednesday The Federal Reserve increased interest rates another 0.75-point rate rise, its fourth straight increase. Indices were all negative after the announcement, with the S&P 500 slipping another 1.2%, after losing 2.5% on Wednesday. The Dow Jones Industrial Average followed falling 280 points and the topsy-turvy Nasdaq fell 1%, as the index saw several favorites recover and hold. Many economists, strategists and financial officers would welcome a less severe rate hike in December, however Mr. Powell is intent on combating stubborn inflation at all costs. “It is very premature to be thinking about pausing, Mr. Powell said, “We think we have a ways to go.” Mr. Powell noted also that the “inflation picture has become more and more challenging.” A profound statement in a complex time…As Mr. Powell continues discussing rate hikes, and inflation’s woes, the indices dropped on Thursday, as nearly all equities were affected. Seemingly, the after effects of the rate increase is a weight on the market, as the time to digest takes longer and longer. Hopefully when clear downward results are evident, these ‘valleys’ will not be as ‘deep’ and positive tones will take back the market.

The 10-year Treasury edged higher, settling near 4.2%, while the 2-year yield finished over 4.7%. Mortgage rates hit new highs, with lateThursday’s rate at 7.125, up from 7.08 last Thursday.

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Alastair Borthwick, Bank of America chief financial officer on consumers credit cards. Barron’s “The (delinquency) numbers are so low, we’re squinting to see change here.”

Dan Boardman-Weston, chief executive officer of BRI Wealth Management, WSJ “My gut feeling is that tech companies are leading where other companies will follow in the coming months.”

Peter Garney, head of equity strategy at Saxo Bank, WSJ “Since the financial crisis you’ve had this massive rally in tech stocks on the combination of cheap energy, very low interest rates and a massive acceleration in the adoption of digital services,” said Mr.Garney. He adds, “Now on the backside of this pandemic, with interest rates and inflation suddenly out of the bottle, you’ve seen a drastic repricing of tech stocks. A lot of investors are beginning to question their portfolios.”

Agron Nicaj, U.S. economist at MUFG, WSJ “This week is offering more questions to the Fed than answers about the true trajectory of the economy,” said Mr.Nicaj. “There are some signs of slowing down, but it’s not enough to indicate a trend for the Fed quite yet to get them off their track of interest rate hikes.”

Elon Musk, after closing his deal for Twitter, Barron’s “The bird is freed.”