1. Moving the markets

With the bulls continuing their ascent to take out all-time highs, they succeeded by pushing the Dow into record territory, while S&P 500 “only” registered its sixth consecutive day of gains. The Nasdaq lagged by bouncing around its unchanged line while giving up early advances.

MarketWatch was correct with its analysis that the markets have climbed a wall of worries over the past two months. Fears over the delta Covid surge, supply chain hiccups, a China property crisis, the Fed signaling the removal of stimulus and surging inflation, rattled nerves on Wall Street but did not threaten the end of this bullish period.

Combining weaker-than-expected producer prices with better-than-expected bank earnings has so far been a winning combination, but it remains to be seen whether the former can be maintained, or if inflation indeed will rear its ugly head in the future, a view that I share.

Dumping and jumping played out in different arenas. The US Dollar continued to dump, which Gold took advantage of by jumping 0.75% and again approaching its $1,800 level. Even gently rising bond yields could not take the starch out of gold’s rebound, with the ever-worsening inflationary background lending support to the precious metal.

I’ll be out tomorrow but will post the weekly StatSheet by 6:30 pm PST.

1. Moving the markets

Positive earnings reports kept bullish momentum alive, with major companies showing strong report cards, which helped alleviate fears that Covid cases and rising costs might undermine corporate profit margins. So far, this has not happened.

It was “go time” right after the opening bell, and the major indexes followed the path of least resistance, which was up, with all three of them closing solidly in the green. The S&P 500 reclaimed its closely watched 4,500 level without hesitation or skipping a beat, and it is now positioned less than 1% from its all-time high.

Economically speaking, we learned that US Housing Starts and Building Permits plummeted in September, which was preceded by a surprise gain in August. The correction was worse than expected with Building Permits sinking 7.7% MoM vs. an expected drop of 2.4%. Housing Starts tumbled 1.6% vs. no expected change.

It remains to be seen, if this is an indication of an upcoming broad economic slowdown, because the Atlanta Fed came out today saying the economy teeters on the verge of contraction. Translated, it means growth is falling and inflation is soaring thereby bringing dreaded “S” word, as in Stagflation, back to the front burner.  

Added ZeroHedge:

In its latest GDPNow forecast published moments ago, the Atlanta Fed slashed its estimate for real GDP growth in the third quarter of 2021 to just 0.5%, down from 1.2% on October 15, from 6% about two months ago, and down from 14% back in May.

However, looking at market behavior you would not notice any underlying issues, because those concerns are simply overlooked when inconvenient.

The US Dollar slipped and broke October support to the downside. Bond yields climbed again with the 10-year closing at 1.638%. Gold managed to hang tight and gained slightly, but it was not enough to get over its $1,800 glass ceiling.  

Looking at the comparison chart to 1987, it looks like we may have reached a moment of truth with ZeroHedge quipping “Happy 34^th Black Monday Anniversary.”

1. Moving the markets

Friday’s ramp-a-thon did not carry through into this morning’s opening, as the major indexes dipped into the red. However, that move was quickly reversed, as equities recovered to close in the green led by the Nasdaq, which registered its fourth consecutive day of gains. The laggard was the Dow, which ended up hugging its unchanged line.

Market support came from optimism of a continuing strong earnings season from major companies such as Netflix, IBM, Verizon, and Tesla. As FactSet reports, 41 of the S&P 500 components have reported Q3 results with 80% of them exceeding EPS expectations.

However, not all news was encouraging with China’s meager 4.9% annual GDP growth for Q3 vs. expectations of 5.2% creating disappointment. Then we learned that US Industrial Production declined in September due to supply constraints. Not helping matters either were spiking bond yields with the 10-year at one point reaching the 1.62% level before easing into the close.

None of these events pulled the markets down, and it seemed that the “feel good” sentiment from last week’s lift-a-thon was still firmly engrained in traders’ minds.

The US Dollar rode the rollercoaster and ended the session about unchanged, while Gold was stuck in a sideways pattern and went nowhere.

Given last week’s strong Friday finish, which easily could have resulted in a Monday sell-off, today’s market action was positive, a condition which may carry on, should the next set of quarterly report cards be in line with recent ones.