[Chart courtesy of MarketWatch.com]

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.”

[Chart courtesy of MarketWatch.com]

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.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

Two of the three major indexes found themselves in an early hole, but late session bullishness reversed the initial trend and assured a steady upward climb. The Dow reached its unchanged line, the S&P 500 ended up with moderate gains, but the Nasdaq bounced in the green all day and produced a solid advance of 0.73%.

The 3-day losing streak is now in the rearview mirror with some support coming from the widely analyzed FOMC report, which showed that the Central Bank could begin tapering its asset-purchase program as soon as by the middle of November:

Participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate,” the minutes said.

No surprises there, so traders focused on the CPI numbers. The index jumped 0.4% in September from the prior month and 5.4% year over year vs. expectations of 0.3% or an annualized rate of 5.3%. Of course, one analyst could not help himself by stating that most of these inflationary pressures are transitory. Yeah right.

The US Dollar dipped and ripped and then lost all momentum and closed down -0.51%, joined by 10-year bond yields, which also showed weakness. This combination, coupled with continued uncertainty, proved to be a boon for gold with the precious metal roaring towards its $1,800 level and gaining almost 2%.

Despite the rebound supported by dip buyers, there is one segment of the markets that still does not participate, as Bloomberg shows in this chart. Makes me wonder why…