The View from 5th Avenue

Knowing that stocks go up after elections, regardless of the party in power, should have kept investors tuned in to earnings and macro data today. But, as we all know markets absolutely despise uncertainty—the “not knowing” causes sentiment to falter. After 3 days rallying and an historic surge in October, markets staged a meaningful pullback, while waiting on just three states to determine whether the US would swing red or blue. But the election wasn’t the only show in town.

What began as churn and chop and drifting higher, turned to something that felt much more like whiplash. Although closing higher on the day, US equities were jolted lower midday as crypto markets faltered in an unsuccessful attempt to hold equities under with them. The tug-of-war was first from the side of US midterm elections anticipation, hopeful equity markets, USD relief, US Treasury yield declines/stabilization, commodity/precious metal rally (ex-crude), China re-open optimism- all contributing to a continued market rally of the past few days.

After last week’s fireworks between the Fed and its path, with the additional overlay of earnings, investors took a cautious start to this week. Midterm elections are tomorrow, and the Bond market has a short week with a holiday on Friday (sorry equities), plus there was a lack of earnings and economic data pre-open to generate a direction to start. But after trading sideways to start the day, broader indexes found some footing and rallied, closing with a second day of solid gains.

Tuesday gave the markets a JOLTs that the job market was not rolling over yet. With a Fed furiously intent on dropping inflation, that datapoint sent some shockwaves to those that were anticipating a dovish message via Powell Wednesday. While he did say they would take the “cumulative effects” into account, Powell also said they have “some ways to go”. Cue another week of declines for the broader indexes (SPX -3.3%, RTY -2.7%, CCMP -5.6%) as traders readjust their books to the higher for longer outlook.

A lackluster [ /ˈlakˌləstər/adjective/ lacking in vitality, force, or conviction; uninspired or uninspiring ] session in US equities today after yesterday’s proverbial punch to the market’s gut. Early follow-thru from global markets found the US initially under heavier pressure in the am, drifting marginally higher into the afternoon and then again a touch lower into the close. All action maintained in the red today, however.

People were looking for the pivot today, after the most aggressive tightening in over 40 years. But this was not the pivot. Investors watched markets ramp up in a straight line as the initial read on The Fed announcement leaned dovish. But, stocks came right back down in a straight line as Jerome P continued hawk-king. The longer he spoke, the harder the market dove (not a pun). Cries of “someone get him off stage!” were heard across Wall Street.

It is a new month and markets were feeling good to start. October had a monthly gain for the first time since July, and expectations for a slightly dovish Fed have been growing since the WSJ article and Daly “step down” comment 1.5 weeks ago. But with only one day until the big reveal, US economic data once again showed resiliency, especially in the employment arena.

October as we know is the month that concludes with a celebration of the macabre. But the stock market has resembled a non-stop horror movie for much of 2022. Fortunately for many investors, the stock market chose a bull as its costume for Halloween this year and wore it for most of the month. Indices opened the day in the red and didn’t budge much from that position throughout, but a small retreat as monthly books come to a close could almost be predicted. Especially in light of what’s to come.

So if I told you coming into this week that Microsoft, META, Amazon and Google would largely disappoint on earnings, what would the guesses have been for where the S&P/Nasdaq closed on Friday? I’m quite confident that most of you, yours truly included, would be wildly off base. Despite the famous 4 failing to confirm the rally we’d seen over the last week plus from a fundamental perspective, markets shrugged it off and kept on their merry way.

US equities having another mixed day of trading as a complete deluge of earnings has again descended upon us and bringing with it more interesting and/or disappointing datapoints and insight from Q3 to digest and process (to say the least!…). In the perfect demonstration of sector performance divergence- we saw the Dow and Russell hold in +ve territory, while the relatively more tech-heavy SPX fell lower as well as the heavy tech-heavy Nasdaq was under more significant pressure.