Stocks & Bonds, Oil & Water – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

September finished off with the S&P 500 losing 4.9%, dragging the index down for the year, from 20% up to finish the third quarter up 12%. Treasuries have continued their torrid pace, edging upward, pushing the 10-year note up to 4.8%, giving equities ‘a hard road to hold.’ As Treasuries remain strong, attracting serious capital from investors and traders, the stock market interest wanes, unable to sustain upward moves. All the while the technology sector is taking its ‘lumps’, as many of the favorites and ‘high flyers’ struggle to maintain and attract. The energy sector is positive thanks to stronger oil, although the recent sell-off has dropped oil to the $84.00 range.

As the Federal Government shut-down was avoided, the market breathed easier, although the S&P 500 and the Dow Jones Industrial Average were weaker with the Nasdaq Composite up slightly. The heavy ‘cloud’ of the Federal Reserve’s intent to keep rates high for a ‘longer’ period of time has stifled the overall market, along with the high levels of the 10-year and 2-year notes.

As the week opened, stocks were battered by a host of negative news: strong Treasuries, the Fed’s comments that maybe a longer running high level of inflation is a good sign, and reports that the dollar is stronger, pressuring foreign imports and offshore manufacturing. The indexes all reacted, falling lower, as the market began a tailspin. Tuesday’s market opened in a storm, as the 10-year Treasury hit 4.8%, obliterating the Dow Jones, down 431 points. Both the S&P 500 and Nasdaq Composite lost 1.4% and 1.9% respectively. The 2-year note moved higher to 5.148%, with the 30-year bond at 4.936%. As Mabrouk Chetouane, head of global marketing strategy at Natixis Investment Managers said: “If real interest rates continue to increase in the next weeks, we could see real damage in the equity markets. They will all suffer from cost of capital.” Amid the market quagmire, the labor numbers remain positive. The upcoming Labor Department’s release on Friday will likely reveal the resilience of the jobs market, and the conditions in the economy. Stocks opened lower on Thursday, as labor data due out Friday concerned the market. Treasuries backed off a bit, hopefully benefiting the equities market.

The Magic Dollar…. Since July, the dollar has gained 6.6% as of Monday this week. As the Dollar remains strong it feeds off Treasury strengths. The real winners are the U.S. Consumers. Foreign goods, overseas travel, better exchange rates on foreign currency are all benefits. Worldwide growth patterns are adversely affected when the dollar is stronger. Products and manufactured goods that are being sold to the U.S. are now being paid for in dollars far more valuable than currency in the selling country. “The strong dollar is overstaying its welcome. It’s starting to become a problem again,” said Chris Turner, head of foreign exchange strategy at ING. Not all economists would agree, as their thinking is; a strong dollar builds U.S. independence, and heavy influence in the world’s financial dealings. The European euro, and the British pound have rebounded from depressive values in 2022, only to revert to falling values in recent months. The euro hit $1.10 during the summer, while falling back to $1.05 recently. Not only is the dollar to ‘blame’ but the entire eurozone economy is deteriorating, and debt is mounting throughout the region. The dollar is a two-edged sword, cutting foreign economies and building a strong U.S. economy

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Keith Lerner, Co-chief investment officer at Trust Advisory Services, WSJ “My sense is the market is sniffing out that the 10-year Treasury is going to start to stabilize. The market is almost trying to front-run that,” said Mr. Lerner.

Doug Schwenk, Digital Asset Research CEO, Barron’s “If I were cynical, I’d say part of the story line is the death of crypto,” Schwenk said. “The market needs the retail side of crypto to come back.” If it doesn’t, Bitcoin may take a very long nap.

Julia Pollack, chief economist with ZipRecuiter, Barron’s “The usual sort of crash in construction employment that happens when the Fed raises rates just didn’t take place, she said. “I do think this time is different,” Pollack says. “Because we’re coming from a completely different place.

Cameron Brandt, The chief of research at Financial Flows Monitor EPFR, commenting on Japan’s economic situation, Barron’s “It’s fair to say that the friendly No 3 economy is at least nudging in the right direction. With No 2 China struggling financially and threatening politically, that’s good news.