Weekly Market Update

Entering a week headlined by the US midterm elections and the consumer price index (CPI), investors were prepared for fireworks and markets cooperated as stocks and bonds headed into the weekend with quite a bang. Tuesday’s midterm elections proved to be more of a red ripple than a wave, but the GOP appears poised to take the House and markets generally prefer a divided government and political gridlock. October’s CPI report on Thursday morning, however, was the major catalyst bulls have been waiting for as headline inflation came in much softer than anticipated, falling from 8.2% in September to 7.7% (average estimates were 8%). As a result, interest rates fell sharply, and both stock and bonds rallied with the S&P 500 rising over 5.5% on Thursday, it’s best market session since April 2020. The beaten down Nasdaq Composite performed even better as growth and mega tech stocks bounced off deeply oversold levels and propelled the index 7.35% higher, the fifth largest one day gain for the Nasdaq since October 2008.

Bond markets were closed Friday in observation of Veteran’s Day, but clearly markets were surprised by Thursday’s soft inflation print as stock market strength carried into Friday. Adding more fuel to the rally, China announced on Friday morning the reduction of zero covid measures and reopening headlines have gained steam while Chinese stocks have surged. Beyond stocks and bonds has been a firestorm in the cryptocurrency world as the once revered owner of crypto giant FTX, Sam Bankman-Fried, increasingly appears to have duped a host of investors and depositors for billions of dollars. The spectacular implosion culminated with FTX declaring bankruptcy due to a purported $8B cash shortfall. There had been some fears of spillover effects and we saw brief signs of stock market reaction on Tuesday, but $8B is a drop in the bucket relative to the $30T market cap of the S&P 500 and the fallout has been mostly limited to crypto markets, private equity investors, and regulators. Nonetheless, financial media is captivated by Mr. Bankman-Fried as it was not long ago that he was evoking comparisons to the crypto equivalent of J.P. Morgan or Warren Buffet. Now he is most compared to Charles Ponzi or Elizabeth Holmes. Next week is a fairly quiet week for economic data, but a host of Federal Reserve members will make speeches and markets will likely look for acknowledgement of the soft October CPI figure.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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