[Chart courtesy of MarketWatch.com]

1. Moving the markets

After last week’s rebound, that resulted in the S&P 500 finally breaking through its 200-day M/A, which has served as a glass ceiling since April, none of that feel good bullish sentiment was present today.

From the opening bell, the major indexes headed south caused by sudden fears that the Fed may not only not pivot but continue its hawkish policies, even as the economy slides further into recession territory.

That took the starch out of any remaining bullish momentum, as the broad market tumbled, including heavyweights like Tesla, Microsoft, and Amazon, with the retreat being broad based and leaving no place to hide.

Rising bond yields supported the equity bears, with the 10-year gaining 7 bps to close at 3.6%. The S&P “lost” its 200-day M/A again, which it had just reclaimed, bringing up the question whether conquering this resistance level was simply a head fake.

Fed whisperer Nick Timiraos appeared to walk back some of the market’s post-Powell exuberance, as ZeroHedge called it, in this morning’s WSJ article, as the “higher rates for longer” narrative was pushed, which caused terminal Fed rate expectations to surge.   

The stand-by and usually reliable bullish ammo failed today, because the most shorted stocks tanked as well, with no bailout squeeze attempt in sight. The US Dollar rebounded, and Gold dropped back below $1,800.

After a temporary bullish diversion, will the S&P 500 now sync up again with the 2008-2009 analog?

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

A variety of events combined forces to pull the markets out of their doldrums, while not only creating a new “Buy” signal for our Trend Tracking Indexes (section 3) but also breaking the S&P 500’s glass ceiling, namely its 200-day M/A (+0.57%).

We also were re-acquainted with the fact that bad news is good news, as poor economic data releases were seen as putting pressure on the Fed regarding their hawkish interest rate policy.

As ZeroHedge pointed out, Job Openings fell by 353k, as hiring, quits tumbled to multi-year lows. US Pending Home Sales plunged to their biggest annual drop ever, and the Chicago PMI collapsed to Covid-lockdown lows.

But the big assist came from the Fed, when Powell presented his prepared remarks, while talking out of both sides of his mouth:

Dovish:

• The time for moderating the pace of rate increases may come as soon as the December meeting.

Hawkish:

• FED WILL NEED RESTRICTIVE POLICY FOR `SOME TIME’
• RATE PEAK LIKELY `SOMEWHAT HIGHER’ THAN SEPT. FORECASTS
• “Given our progress in tightening policy, the timing of that moderation is far less significant than the questions of how much further we will need to raise rates to control inflation, and the length of time it will be necessary to hold policy at a restrictive level.”
• CONSIDERABLE UNCERTAINTY OVER WHERE RATES WILL PEAK
• WILL REQUIRE SUSTAINED PERIOD OF SLOWER DEMAND GROWTH. It will take substantially more evidence to give comfort that inflation is actually declining. By any standard, inflation remains much too high.”
• HISTORY CAUTIONS AGAINST PREMATURELY LOOSENING POLICY

There you have it. The caution that higher rates are here to stay far outweighed his lonely dovish comment. However, the latter was all the markets wanted to hear, and off to the races we went with the Dow scoring a 700-point gain, the S&P 500 storming ahead +3.09%, all of which now looks to be the beginning of the much hoped for Santa Claus rally.  

Once the bulls got the upper hand, it comes as no surprise that shorts were squeezed adding to the late session Ramp-A-Thon. Bond yields dropped sharply, the US Dollar got slammed, while gold was the beneficiary with the precious metal spiking +1.14% and having its best month since July 2020.

Back to the 2008-2009 analog. Have we now reached a point where 2022 will diverge and start a new bull market?

We will soon find out.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

While the major indexes wandered aimlessly throughout the session, they at least managed to dig themselves out of an early hole, crawled back and reduced their losses. In the end, not much was gained or lost.

Economic data points did nothing to encourage bullish sentiment with Consumer Confidence dropping in October, while Inflation Expectations jumped. US Home prices declined for the 3^rd straight month in September, as ZeroHedge reported, clearly a consequence of soaring mortgage rates.

All eyes are now on Fed head Powell’s speech tomorrow when observers will be hunting for clues whether the central bank might pause or even stop interest rate hikes. It appears that this kind of hopeful thinking, despite Powell & Co having clearly and repeatedly announced that they are nowhere near the Fed’s expected termination rate—now at 5-7%.

CNBC called the next 10 to 14 days a “data-rich period”, which may help clarify if inflation and economic growth can be balanced and, I suppose, co-exist. This Friday’s labor report and next week’s PPI number will add important context to see if this bear market bounce can be extended or not.

Bond yields rose a tad, with the widely followed 10-year bouncing off of yesterday’s lows. The US Dollar rode the roller-coaster again and slipped from yesterday’s close, thereby helping Gold to score some gains for the session.

Looking at the big picture, it appears that Central Banks all over the world are continuing to be in more of a tightening mood to battle the inflation monster, which has adversely affected consumer prices around the globe.

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