Weekly Market Update
October started off with a bang as the S&P 500 rose over 5% in just two days and surging interest rates briefly showed signs of peaking. However, once again the rally was short-lived as a flood of Fed speeches throughout the back half of the week, coupled with a hotter than expected September jobs report on Friday, caused stocks to close only slightly higher for the week. Job growth did slow last month but still exceeded expectations while the unemployment rate surprisingly ticked lower to 3.5%, so with good labor market data translating into bad news for any Fed policy pivot narrative, traders took profits heading into the weekend that precedes three important inflation reports. In addition, OPEC+ did the market no favors, as on Wednesday the cartel announced a 2 million barrel per day cut to oil production targets and WTI crude oil prices rose over 15% this week alone and back above $90 for the first time since the end of August, reinflaming energy inflation concerns.
Next week, will provide crucial insights into various levels of inflation as the Producer Price Index (PPI) comes out Wednesday (8.4% expected), the Consumer Price Index (CPI) is Thursday (8.1% expected), and Michigan Inflation Expectations will be released on Friday (4.7% last month). At the end of the day, any speculation of a Fed pivot or pause in interest rate hikes is probably premature until we get a meaningful and sustained decline from these metrics, particularly CPI, or clear liquidity issues emerge, but markets are forward looking and as we have seen repeatedly this year, investors will undoubtedly look to position opportunistically ahead of these reports on Monday and Tuesday for both upside and downside surprises. In addition, the third quarter S&P 500 earnings season will ramp up Friday with several major banks reporting (JPM, Well Fargo, Citigroup, Morgan Stanley) and we expect investors to focus very closely on guidance and key in on any commentary around the impact of rising interest rates and borrowing and consumption trends.
Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder