Hold onto your hats, market watchers, we had a couple of big events happen that could trigger a big market move in the near future.

• The 5.00% Shockwave: Equities seemed to have lost their footing this week, largely due to the drama surrounding interest rates. The 10-yr note yield made headlines by crossing the 5.00% threshold for the first time since 2007. To add a cherry on top, it jumped a whopping 29 basis points to settle at 4.92% by week’s end. Meanwhile, the 2-yr note yield wasn’t far behind, rising four basis points to close at 5.09%.
• Powell’s Perspective: The Fed’s Balancing Act: Fed Chair Powell’s speech at the Economic Club of New York was the talk of the town. He acknowledged the surge in long-term rates but also hinted that the Fed’s policy might not be as tight as some think. It’s akin to a tightrope walker subtly adjusting their balance mid-performance.
• House Drama: The 3-Round Saga: The House of Representatives was more dramatic than a season finale of a TV show. After three tumultuous rounds of voting, Rep. Jim Jordan faced a setback, losing his bid for Speaker of the House. The GOP conference vote went against him by a “wide margin,” making it a week to remember (or forget, depending on where you stand).
• The Good, The Bad, and The Numbers: Retail sales were the star of the show, coming in stronger than anticipated. On the flip side, existing home sales hit a low not seen since October 2010. And the Leading Indicators index? It was down for the 18th consecutive month. It’s like sifting through a report card with a mix of A’s and C’s.
• Earnings Extravaganza: Netflix and Tesla were the talk of the town, but other big players also made headlines. The Vanguard Mega Cap Growth ETF (MGK) dipped by 3.0%, the S&P 500 declined by 2.4%, and the Invesco S&P 500 Equal Weight ETF (RSP) fell by 2.3%. It’s a reminder that the market is a lot like a rollercoaster – thrilling highs and stomach-churning lows.
• Geopolitical Tensions: A Statistical Overview: The Israel-Hamas situation is escalating, and the numbers are a testament to this. The US, in response to the rising tensions, is deploying THAAD batteries to the Middle East. With aid trucks entering Gaza and the Israeli army’s stern warnings, the numbers are indicating a situation on the brink.
• Argentina’s elections are set for a second round: Finance Minister Sergio Massa and right-wing figure Javier Milei, known for his admiration of Donald Trump, are poised for a November runoff. This comes after Massa’s Peronist coalition outperformed predictions in the recent general election. The global community is closely monitoring the situation, as under Massa’s leadership, Argentina has seen inflation rates skyrocket to almost 140% and poverty levels rise to 40%. Milei, with his unconventional libertarian views, has gained traction due to widespread dissatisfaction.
• Sector Spotlight: In the S&P 500’s sector showdown, consumer staples and energy emerged as the victors, each gaining 0.7%. But not all sectors had reason to celebrate. Real estate and consumer discretionary sectors faced the music, dropping by 4.6% and 4.4%, respectively.

In Conclusion: A Week of Numbers and Nuances

In summary, this week felt like navigating through a whirlwind of numbers. The unexpected 5.00% interest rate took us by surprise, and with the S&P 500 dipping by 2.4%, the market presented a complex web of percentages and data, often seeming at odds with each other.

Two major concerns weigh on my mind: the shadow of a possible recession and the pressure on the Fed to maintain or even hike interest rates. Most economic signs hint at a decelerating economy, with the notable exception of the employment sector. But even the job reports, which often undergo revisions, raise questions. Some argue that many of the reported job additions are merely secondary positions, not genuine new employment opportunities.

There’s a chance we might witness a surge in the markets, especially with the perceived push on the Fed to bolster the economy leading up to the election. But for conservative investors like myself, a stable 5% bank return seems appealing, especially considering the current market volatility and the ongoing Israel-Hamas conflict.

As we brace ourselves for the coming weeks, one thing remains clear: in the financial realm, the numbers are always active, and so are we. Here’s to another week of deciphering the digits!

CALENDAR & MOVERS

• Wednesday: New Home Sales (September)
• Thursday: GDP (QoQ) (Q3)
• Friday: Personal Income
• Friday: Consumer Sentiment
• Fed Talks
• Earnings
• Middle East Tensions

Tech Titans Take the Stage

As we roll further into the Q3 earnings season, four of the tech world’s “Big Seven” are gearing up to unveil their numbers. On the docket for Tuesday are giants like Microsoft (MSFT) and Alphabet (GOOGL), Google’s parent entity. Mid-week, Meta Platforms (META) steps into the spotlight, while Amazon (AMZN) takes its turn on Thursday. These behemoths have been the wind beneath the S&P 500’s wings this year. So, any hint of a growth hiccup might just send the market into a tizzy. And let’s not forget other industry bigwigs like Visa (V), Mastercard (MC), Ford (F), General Motors (GM), IBM, Intel (INTC), and ExxonMobil (XOM), all set to share their financial tales.

Economic Pulse & Pricey Matters

Eyes and ears will be tuned in to key economic indicators this week, shedding light on the nation’s fiscal health. Come Thursday, the curtains will rise on the Q3 GDP figures. With analysts pegging the annualized growth at 4.1%, spurred by consumer splurges, it’s believed we might be bidding adieu to this growth spurt, gearing up for a more subdued economic rhythm ahead. And to wrap up the week, Friday will see the release of the Core PCE Price Index, the Fed’s go-to inflation barometer, hinting at a 3.7% year-on-year price uptick.

ECB’s Rate Riddle

Over in Europe, all eyes are on the European Central Bank’s monetary policy huddle this Thursday. The buzz on the street is that the ECB might hit the pause button on rate hikes, a move we haven’t seen in over a year, spanning a good ten meetings. Market mavens will be hanging on every word from ECB Chief, Christine Lagarde, especially her take on the longevity of these elevated rates, given the recent bond yield bounce.

A Mixed Bag of Market Moves

In other corners of the financial world, the Middle East’s geopolitical tango continues to cast a shadow, especially with its sway over oil price dynamics. The region’s unpredictability and the looming threat of things heating up have the market on its toes. Bond buffs, too, are in for a ride, especially post the 10-year Treasury yield’s leap past the 5% mark, a scene we haven’t witnessed since 2007. This cocktail of events has Wall Street’s nerves jangling, evident from the CBOE Volatility Index (VIX) hitting a near seven-month peak last Friday. As we tread ahead, it’ll be intriguing to see if investors cozy up to safe havens like the dollar, gold, and bonds.

BONDS

Recent financing endeavors for homes or vehicles have highlighted a significant rise in interest rates over the past 18 months. This has made borrowing costlier, in line with the Federal Reserve’s (Fed) strategy to curb inflation by adjusting its federal funds target rate from nearly zero to between 5.25% and 5.50%.

With these higher rates, the cost to maintain government debt is predicted to grow from $745 billion in 2024 to $1.4 trillion by 2033, according to the CBO. Historically, such trends have led to fiscal restraint by the U.S. Congress. Although rates might rise slightly more, the major increase in yields is likely behind us. Investors now have an opportunity to secure historically high yields, but it’s worth noting the associated risks, especially with bonds.

COMMODITIES

Oil & Energy

The Middle East is experiencing heightened tensions, which is bolstering oil prices. As of now, Brent crude oil has seen a 2.60% increase this week, reaching $93 per barrel. In comparison, WTI (West Texas Intermediate) crude stands at $89.20.

Another factor positively influencing oil prices is the consistent drop in US weekly oil stockpiles. This decline is driven by a spike in US oil exports, which, based on recent data from the US Energy Agency, averaged 5.3 million barrels daily. Meanwhile, in Europe, natural gas prices have found stability, hovering around 51 EUR/MWh.

Gold & Precious Metals

Gold, often seen as a secure investment during uncertain times, is thriving. In the past five days alone, its value has risen by 3%, and it has surged over 7% since the start of the month, now trading near $1985 per ounce. This rise in gold prices is primarily due to geopolitical tensions, which seem to be having a more significant impact than the increasing bond yields.

However, not all metals are experiencing the same bullish trend as gold. Industrial metals like copper, aluminum, and zinc are currently stable, with traders expressing concerns over China’s real estate market health. Presently, copper is priced at $7990 on the LME (London Metal Exchange), while aluminum and zinc are priced at $$2185 and $2400, respectively.

What This Means for Investors

The fluctuating prices in the energy and metals sectors can impact investment portfolios. Rising oil prices can affect industries reliant on oil, while gold’s status as a safe-haven asset means it can be a good hedge during geopolitical unrest. However, the stability in industrial metals suggests caution in the market, especially with concerns around China’s real estate. Investors should stay informed and consider diversifying their portfolios to navigate these market dynamics.

CRYPTOCURRENCY

This week, Bitcoin experienced a significant surge, climbing nearly 10% and nearing the $30,000 mark. Meanwhile, Ether also saw an increase, though at a more modest 3% compared to Bitcoin’s impressive jump. The primary catalyst behind this uptrend is the growing speculation about the potential approval of a Bitcoin Spot ETF.

While no official decision has been made, the US Securities and Exchange Commission (SEC) is facing mounting challenges in justifying its rejections of these ETF applications. For many, the approval of a Bitcoin-backed exchange-traded product could open the doors to a broader range of financial participants who haven’t yet ventured into the Bitcoin market.