Reply To: Traders Market Weekly: Expect the Unexpected



Dow 29555.81 +350.90 (1.20%)
Nasdaq 10578.99 +37.04 (0.35%)
SP 500 3632.84 +20.38 (0.56%)

NYSE Adv 1801 Dec 1207 Vol 447.0 mln
Nasdaq Adv 2278 Dec 2051 Vol 2.90 bln

From Dow Jones Industrial Average down 0.4%, yet the S&P 500 and Nasdaq Composite down 1.2% and 1.8%, respectively.
Notably, the S&P 500 broke down to a new low for the year (3,568.45) shortly after the open, yet selling pressure abated at roughly the same time the U.S. Dollar Index rolled over. It was then that buyers re-emerged to help pare today’s losses, and what began as a down day, has evolved into a trend-up day with broad-based participation in the rebound effort.

The losses came on top of yesterday’s losses and were driven by concerns related to the growth outlook and financial stability risks.

The latter came to light with the Bank of England (BoE) intervening again in the UK gilt market after a nasty selloff yesterday that completely undid the gains registered after the BoE announced its emergency gilt purchase operation on September 28. Today, the BoE said it is going to buy index-linked gilts from October 11 until October 14 to mitigate dysfunction in the market and prevent “fire-sale” dynamics.

That news helped stop the bleeding in gilts and provided a boost for the British pound (GBP/USD +0.9% to 1.1156) that is weighing on the U.S. Dollar Index (-0.5% to 112.54) along with strength in the euro today (EUR/USD +0.6% to 0.9759).

The slowdown concerns stemmed from reports that China is imposing new restrictions in some Chinese cities because of rising COVID cases. Also, the IMF lowered its 2022 global growth forecast to 2.7% from 2.9% and said “The worst is yet to come.”

It has also helped that Treasury yields have come down noticeably from their overnight highs as well, particularly the 10-yr note yield, which kissed 4.00%. It has since backed down to 3.89% while the 2-yr note yield, which hit 4.34%, sits at 4.28%.

The 2-yr note yield has not reacted at all really to Cleveland Fed President Mester (FOMC voter) saying in a speech that monetary policy is moving into restrictive territory and needs to stay there for some time or to her position that she thinks the bigger risk at this point, given current economic conditions and the outlook, is tightening too little and allowing very high inflation to persist and become embedded in the economy.

Those remarks took a little energy away from the stock market’s rebound run, but it nonetheless regrouped, and the major indices are sitting near their best levels of the day.

Nine out of 11 S&P 500 sectors are in positive territory.

The information technology sector (-0.3%) was briefly in positive territory after being down as much as 2.0%. The Philadelphia Semiconductor Index, meanwhile, is down 1.3% now after being down as much as 3.4% at its worst level of the day.

Today’s best-performing sectors are the defensive-oriented consumer staples (+1.7%) and health care (+1.5%) sectors.

The Dow Jones Industrial Average has been the star performer in today’s trade, outperforming from the start with the help of Amgen (AMGN 246.07, +13.92, +6.0%), which was upgraded by Morgan Stanley to Overweight from Equal-Weight.