But Wait, There’s More!

But Wait, There’s More!

Markets definitely took some body blows last week but managed to survive OK. Optimism, both in stocks and bonds, seems to be growing. Can we get the Santa Rally started, now?

Maybe. It is possible that the 200-day moving average on the S&P 500 served as support and bond yields hitting 2007 highs is good enough? That possibility is why we’ve been trickling in some purchases, of late.

Treasury markets are working on a historic decline. Among other things, that could make upcoming bank earnings pretty interesting, While the stock market and dollar decided to celebrate on Friday, the bond market couldn’t stop falling, as we face more supply. Treasurys continuing to fall would likely be a problem.

Along those lines, earnings season starts in earnest late next week, with big banks reporting. In general, earnings season could be pretty interesting, as expectations for the future are pretty high. Is the economy doing well enough that guidance can meet expectations?

Lastly, we were thrown a curveball over the weekend when Hamas invaded Israel. Hundreds were killed, thousands injured, and hostages were taken, apparently including some Americans, along with other foreigners.

Obviously, the loss of life is highly unfortunate, but as this is a blog about finance, I’ll keep the focus there. We’ve had the expected early reaction, with oil up, dollar up, volatility up, and markets down. Treasurys are getting a safe haven bid, as well.

Are those moves going to keep trending? Honestly, I have no idea. One other interesting thing is that last week, markets started to more aggressively price in expectations for lower growth ahead. Procyclical stocks like homebuilders and airlines are starting to look worse, while we started to see a bid towards the sort of assets that did well in the first part of 2022. Is that the start of a new trend, as well? Again, I don’t know, but we’ll see what happens.

Ultimately, October seasonally does well but can also see some large drawdowns. We’ve been cautious entering the month but expect we can get more constructive as we head on. What to buy is getting more interesting, though. Markets seem to have stopped pricing in hopes for economic growth. Is that a short-term trend that will reverse or the start of a new trend? if I had to bet, I’d say it’s a new trend but it’s much easier to just see what happens in the busy weeks in front of us.