Wall Street got the week off to a positive start. The Dow Jones Industrial Average vaulted 550 points higher on Monday, or 1.9%, while the S&P 500 advanced 94 points (2.7%). Meanwhile, the NASDAQ, as usual, clocked in with the biggest move, jumping 354 points, or 3.4%, thanks to a rebound in some key tech stocks. All of the major market sectors posted solid advances, led by consumer discretionary (+4.2%), communication services (3.3%), and technology shares (3.1%). Consumer staples were the laggards for the session, but even they rose a respectable 1.1%.
Better-than-expected earnings reports from Corporate America appeared to help fuel the sharp upswing. However, it remains to be seen if this turns out to be yet another bear-market rally. Although there’s chatter about when the Federal Reserve might ease off the monetary brakes in 2023, for now the central bank’s resolve to tame inflation is clear, and rising interest rates will likely continue to steer the market’s overall direction for the time being. Basically, as yields on fixed income securities move higher, stocks tend to lose favor with investors.
The good news is that, if history is any guide, the market will likely resume its uptrend long before inflation hits the central bank’s target of 2%-3%. The last time the annual inflation rate topped 8% was in January of 1982. And, from there, it was nearly a year and a half before the rate fell below the 3% mark. Throughout that entire span, the Fed Funds target rate remained in double-digit territory, finally dropping below 10% in late 1984. However, stocks began to recover well before that, posting annual advances from 1982 to 1989.
As we head toward today’s opening bell, U.S. stock futures are suggesting a very strong positive open for the major indexes. In overnight trading, Asian markets were mostly up. Meanwhile, stocks in Europe are sharply higher. Elsewhere, oil futures are hovering around the unchanged mark, at $85.40 or so a barrel.
Meanwhile, third-quarter earnings season continues to pick up steam, with a number of big names reporting this week. These include Goldman Sachs (GS) with a strong report just out, Alcoa (AA) and Baker Hughes (BKR) on Wednesday, American Airlines (AAL), and Dow (DOW) on Thursday, followed by American Express (AXP), Verizon Communications (VZ), and Schlumberger (SLB) on Friday, among many others.
On the economic report docket, the National Association of Home Builders’ index for October is set to come out a bit later this morning. Tomorrow brings more news from the sector with the release of building permits and housing starts for September. This will be followed on Thursday with the figures for last month’s existing home sales as well as an update on leading economic indicators. – Mario Ferro
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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