October 23, 2023
Good morning,
Few investors were surprised by the market selloff on Friday (SPX – 1.26%). Traders around the world reduce risk going into the weekends when markets are closed and there is war in the air. Friday’s action capped a difficult week for stocks and bonds. The S&P 500 Index (SPX) was off -2.39%, and bonds (in aggregate) were off -1.9% (that is an outsized move for bonds) for the week. There was some expectation that prices might recover some of Friday’s losses this morning, assuming status quo from the Israel-Hamas debacle.
Not so. Bond yields continue to rise this morning (US 2yr @ 5.12%, US 10yr @ 5.00%). Futures (the SPX kind) are off another -.40% with no surprise headlines from the Middle East.
Technically, stocks and bonds are facing somewhat of a moment of truth. Major bond support is the 5% yield level on the US 10yr. Likewise, for equities, the SPX is threatening its support zone at S&P 4200. On the one hand, during the last week of October, the stock market transitions from the most prolonged period of seasonal weakness to the most bullish two-month window, historically. However, sentiment is not yet bearish enough to consider it a bullish factor.
The week ahead has the Fed in its quiet period before its next meeting (11/1). Investors looking to earnings from a slew of Big Tech giants (MSFT, META, AMZN, GOOG) for signs of whether Wall Street projections are too optimistic since the market has been punishing results that fall short of expectations. Q3 GDP comes on Thursday with key inflation data on Friday (Personal Consumption Expenditures – the Fed’s preferred inflation gauge). And of course – there is another war to consider.
Be well,
Mike
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