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This week might actually have been the craziest week in the market I’ve ever seen. It was a losing week for the S&P despite a 2.6% gain on Thursday after the CPI report.
Investors may be inclined to think that the CPI report was good on account of the Thursday rally, but the report was far from good. Total CPI was up 8.2% year over year versus 8.3% reported last month. Core CPI, which excludes food and energy, was up 6.6% versus 6.3%. This is the highest level of core CPI since August of 1982.
Initially, the markets reacted appropriately with a low opening (the S&P hit a new low for the year here), Treasury yields shot higher, and the USD Index jumped Thursday morning. That move lower coincidentally was also a 50% retracement of the pandemic rally. This technical indicator ignited a rebounding effort that was intensified by short-covering activity and huge buy-volumes from algorithms.
This became a huge rebound and extended outside of our market. The UK gilt market rallied on reports that the Prime Minister could scale back their fiscal stimulus plan.
The Dow swung 1,507 points from its intraday low to its intraday high on Thursday, the S&P swung almost 200 points, and the NASDAQ swung just over 600 points. Huge moves, but there was no follow through on Friday.
The S&P briefly pushed higher on Friday before falling hard. Gilt yields rose on worries about the state of the market now that the Bank of England has pulled its emergency liquidity report, the 10 years note yield hit 4%, and people woke up to the fact that the Thursday rally had no substance.
$JPM, $UNH, $WFC, and $C had some better-than-expected earnings on Friday which provided some support that day. But selling pressure from the 10-year note yield touching 4% proved too much.
Then, to add to the selling pressure, the Index of Consumer Sentiment report showed an increase in 1 year and 5 year inflation expectations, serving as a reminder that the market got carried away with the CPI rally on Thursday.
The sell off on Friday showed very little buying interest from investors. The same can be said of the retail shoppers in September based on the release of that report.
Total retail sales were flat for the month. Sales, excluding autos, were up only 0.1%. These figures are not adjusted for inflation. The uninspiring retail numbers for September suggest that consumers were watching their spending.
The new for this week was definitely loaded on the back end. One noteworthy item from the early week was talk from JPMorgan Chase CEO Jamie Dimon. On Monday, he stated that he thinks the economy will be in a recession in 6-9 months and that the market could fall another 20% if there is something like a hard landing.
Other new items came from the IMF who cut their global growth forecast by 0.2% to 2.7%. Reports showed that new restrictions were being put in place in Chinese cities for rising COVID cases and President Biden claims consequences for Saudi Arabia agreeing to cut oil production. Russia also increased air attacks on Ukraine cities.
The markets were hit this week with consumer discretionary, IT, utilities, and real estate being hit the hardest. Semiconductors were hit the hardest of all with many semi-indexes falling more than 8% this week. Consumer staples, health care, and financials were only sectors to come out ahead this week.
As I said last week, be ready for more losses in the long term! The Fed can still mess this up, if they stay too aggressive and miss the window to cool, pushing us into a recession. Jamie Dimon’s talk only served to reinforce my opinions which I have been stressing on here for weeks!
Next week has nothing of great importance on the economic calendar for the US, but lots to watch abroad which could have a small impact on our markets.
Next week I am thinking we see some more red, but not a huge amount, as investors continue their reality check with the fact that the CPI release was far from great.
This week was so volatile that I didn’t make too many buys, only Activision and my automatic adds, you can read about the portfolio here. Use that update to help you put together a shopping list of some solid dividend stocks to pick up for the long term.