October 31st, 2022

Market Hands Out More Treats Than Tricks

The Dow in particular has been handing out more treats than tricks this October.  The index is on pace to have its best October in its 100+ year history.  The beginning of the month was a bit shaky, but the rest of the month saw the index break through all key moving averages.  

As earnings came out in tech, it started to become clear that investors are bracing for a recession next year. Investors got out of tech and have been pouring money into the dividend-friendly Dow stocks.

Even the Russell 2000, enjoyed an abnormal move to the upside over the last two weeks.  However, it’s important to remember that these types of bullish moves happen within bear markets.  The IWM could stall out here and retreat from here.

October’s gains have been assisted by the hope that the Fed would start lowering their rate hikes, but they haven’t given any indication of doing that. Remember their inflation goal is 2% and the PCE data showed that inflation isn’t going anywhere.

I could be wrong, but there’s no indication that the Fed is going to slow anything down and that could cause a nasty end if they destroy the hope party later this week.

Let’s get into the reports that can move the markets this week, including the much-anticipated Fed announcement.

Tuesday – 10 am EST – Manufacturing Index – Manufacturing continues to slow and the index is sitting at 50.9, with the consensus for September to be at 50.0. This is neither good nor bad. It’s 50 out of 100, showing that manufacturing is neither in high demand nor sitting around with nothing to do.

Wednesday – 10:30 am EST – Petroleum Status Report – Last week showed 2.6 million barrels in crude oil inventories. If demand diminishes, we should see these inventories increase, but I don’t expect much from this report since the Fed announcement is later in the day.

Wednesday – 2 pm EST – FOMC Announcement / 2:30 pm EST Fed Press Conference – The Fed is likely to announce another 75 basis points increase, but what everyone is looking for is an announcement for future hikes to be reduced down to 50 bp. If we get an indication of slowing down hikes, I believe the market will take off. We’ve already seen the market is willing to shake off any bad news coming out this month, so it’s primed for a move to the upside. If the Fed doesn’t give the market what it wants, we could see another violent down day, and a retracement back to key moving averages.

Thursday – 8:30 am EST – International Trades in Goods and Services & Jobless Claims – With the strong dollar, we continue to see the deficit in international trade get worse. Last month was $-67.4B and the estimate for September’s report is $-71.1B.

As far as jobless claims, they are supposed to edge up again this week to 222k.

Friday – 8:30 am EST – Employment Situation – The unemployment rate is supposed to edge up from 3.5% to 3.6%, while showing a slight decrease in hourly earnings year-over-year, going from 5.0% to 4.7%. This is a number I’d pay attention to because if wages continues to decrease, consumers will be forced to alter their shopping behavior and that would ultimately help reduce inflation.

I don’t have a trade idea today. I’m holding off some to see what the Fed will do later this week.

I hope everyone has a happy and safe Halloween! It’s one of my favorite times of the year.

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Jeff Wood

Editor, Filthy Rich Dirt Poor

Trader, Options Testing Lab