Replies to post #101162 on Savvy Trades and Investments

[researcher59]

Market commentary from briefing.com -

Market Briefing: CPI shock wears off as market rallies back from drop below 3,500

The stock market looks pretty good today following the hotter-than-expected September Consumer Price Index (CPI). The S&P 500 is up 1.5% after being down 2.4% shortly after today's open.

For some context, consider that the S&P 500 declined as much as 4.6% following the hotter-than-expected August CPI report on September 13 before closing that day with a 4.3% loss. There is still a lot of time left in today's session, but buyers have not been missing in action today.

In fact, it appears that technical buyers saw a call to action with the drop below 3,500 at today's open, which effectively marked a 50% retracement of the pandemic rally. Today's low for the S&P 500 was 3,491.58, which is also a new low for the year. The sharp bounce off today's low, which has the S&P 500 back above 3,600, has likely been helped by short-covering activity.

Some improvement in the UK gilt market, which followed reports that UK Prime Minister Truss might dial back her fiscal stimulus plan, has helped bolster sentiment along with some improvement (of late) in the Treasury market. Whereas the S&P 500 found support under 3,500, the 10-yr note yield appears to have found some resistance with its post-CPI push above 4.00%. Having hit 4.07% at this morning's high, the 10-yr note yield has come back to 3.97%.

The Treasury market is adjusting to the reality that the hot CPI report, which showed core CPI up 6.6% yr/yr, versus 6.3% in August, has solidified the case for a 75-basis point rate hike at the November FOMC meeting and has increased the likelihood of another 75-basis point hike in December. The 2-yr note yield is up 14 basis points to 4.43%.

Stocks, however, have weathered the interest rate shock quite well, recognizing perhaps that the CPI surprise was foreshadowed somewhat by the hotter-than-expected Producer Price Index on Wednesday.

In any case, the energy (+3.4%), financial (+1.5%), and materials (+1.5%) sectors are all showing gains and sit atop the sector performance rankings. The consumer discretionary sector (-0.6%) is a weaker link, as the specter of higher interest rates slowing economic activity has undercut buying interest. This sector, however, had been down 4.1% earlier.

Semiconductors, meanwhile, are exhibiting relative strength following a better-than-expected earnings report and outlook from Taiwan Semiconductor Manufacturing Co. (TSM 68.99, +4.88, +7.6%). Chip equipment maker Applied Materials (AMAT 79.18, +3.17, +4.2%) for its part is trading higher after a fiscal Q4 warning that was attributed to the new export restrictions on semiconductor technology to China. The Philadelphia Semiconductor Index is up 2.7%.

The Dow Jones Industrial Average is up 1.7%; the S&P 500 is up 1.5%; the Nasdaq Composite is up 1.4%; and the Russell 2000 is down 0.6%.

[hweb2]

Yeah crazy action! The huge selloff after what was an expected to be a hot CPI number seemed a little strange to me...and now I don't understand why the markets are zooming higher? Who knows where this thing will be by the close. Needless to say, I'm not exactly trusting it ha

[gilead23]

I’m a bit mystified at the massive rally

I disagree with hweb. The inflation numbers came in really hot 2 days in a row. I think the original reaction of down 500 is pretty clear evidence this wasn’t expected.

I also don’t think the fed cares about the stock market except insofar as they want it lower to tighten financial conditions. They definitely aren’t going to stop to appease traders.

My thought is to carefully average into stuff that looks cheap with the knowledge that the economic headwinds are fierce, and that the fed is going to make them worse out of necessity, essentially business as usual, but with more caution.

And earnings estimates still show continued growth. I’ll take the under.

[Bmrboy]

My best friend bet me dinner that the Dow would be up over 750 points today. I didn't think there was any way in hell. Seems as though he has a pulse on the market lately.