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This past week saw markets drop. The S&P 500 fell over 3%, Nasdaq fell 5%, and the Dow fell 1.5%. There were 3 main reasons for the drop.
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Job Openings and Labor Turnover (JOLTS) came out on Tuesday and it was hotter than expected with 10.7 million openings versus a forecast of 10 million. The market viewed this as another reason why the Fed wouldn’t slow rate hikes and sent the rates and the dollar higher.
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On Thursday the unemployment rate came out a tick higher than expected with a 3.7% actual vs an expected 3.6%. However, the participation rate was a tick lower than the previous month by .1%. Overall we are still experiencing a low participation rate.
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The big market mover was the FOMC press conference on Friday. Many investors were hoping for a dovish pivot, but the FED remained hawkish and made it clear that rates would have to continue higher. The market dropped like a rock after the he made these comments. This week also saw the Fed’s balance sheet drop close to $46 billion. It looks like they are finally unloading as they promised during the summer.
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An array of companies reported earnings including AMD and Berkshire Hathaway. AMD missed on revenue and earnings, but traded higher until the previous mentioned forces pushed it down. However, it did finish the week 2% higher.
Berkshire Hathaway reported earning on Saturday. The report was mostly positive. Buffett’s company report a 20% increase in operating earnings from last year. It also spent $1.05 billion in share repurchases. The company’s stock is down 4% compared to 20% of the S&P 500.
This week will be an interesting one. The CPI report is scheduled to be released on Thursday. Analysts are forecasting 7.9% YoY. However, this seems low to me. The Cleveland Fed has underestimated the CPI 16 of the last 19 times, and they are estimating 8.2%. Looking at the chart below, the VIX is considerably lower than the past two CPI prints. It seems the market is underhedged for a higher-than-expected CPI report.
One reason why CPI flatten out of the past 4 months is because gasoline prices came down. However, in September gasoline went up over 7%. Not a good indicator if you are wanting to CPI to cool.
The stock prices of consumer food manufactures have been an interesting gauge of determining inflation. You can see in this chart General Mills stock went up 7.4% the month of October which may mean that CPI could follow the trend.
With the market currently being underhedged, if we get a hotter than expected CPI number on Thursday, watch out… things could get rocky. We would most likely see the VIX climb which would send the market lower. Rates would most likely jump and the dollar could rise. Since the market has been trading inversely to the dollar, a raise in the dollar index probably means bad news for equities.
The Nasdaq has flirted with the recent lows on Thursday and Friday and looks like it could consolidate and break down.
The Nasdaq and the TIPS have been trading parallel with each other for the majority of the year.
Similar to the Nasdaq, TIPS are flirting with the lows in the channels and a break down could send the Nasdaq lower.
ARKK ETF also looks like it is ready to break the lows and continue downward in the channel. If Nasdaq goes lower, watch for ARKK to follow.
Tesla has a similar chart to the Nasdaq. It has hit the $207 level multiple times and has bounced back. If the Nasdaq breaks down, I think Tesla could make a strong break through this level.
Intel has been the biggest lagger in my porfolio. However, I think we could see an improvement in the chart. Stronger momemtum and an upper channel could shows signs of life. They also beat expectations on revenue and earnings on the last earnings report, so there are some fundamentals for the move upward.
Finally there is OXY. Looks like the chart is setting up for a potential breakout. If the price gets above $75, I think it could run higher.
A few final notes. Election day is Tuesday and most experts believe the Republicans will take back the house and senate. It will be interesting to see how the market reacts to this. I have no predictions if the market will be higher or lower on Wednesday. Investors could view this as congress most likely not passing any additional spending bills for the next 2 years which may lower inflation. However, as I mentioned earlier the Fed unloaded $46 billion off its balance sheet and there is plenty more. Will the Fed dump a higher number the same week Republicans take back congress? We shall see. Not that the Federal Reserve is political ;).
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The bond market is closed Friday but the stock market will be open. Thanks to all our Veterans!
Disclosures: I own INTC and OXY. I am short QQQ and ARKK.
This page contains independent commentary to be used for informational and educational purposes only. Joshua Pilgreen is President and an investment adviser representative with Arbor Portfolio Management. Mr. Pilgreen is not affiliated with any company and does not serve on the board of any related company that was mentioned in the commentary. All opinions and analyses presented by Joshua Pilgreen in this analysis or market report are solely Joshua Pilgreen’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Joshua Pilgreen as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Joshua Pilgreen’s analyses are based upon information and independent research that he considers reliable, but neither Joshua Pilgreen nor Arbor Portfolio Management guarantees its completeness or accuracy, and it should not be relied upon as such. Neither Joshua Pilgreen nor Arbor Portfolio Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you.
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