Markets Swing On Comments By Jerome Powell

Key Takeaways

• Comments By Jerome Powell Send Stocks On A Wild Ride
• Volatility, Gold And Oil All Rising
• Next Week’s Earnings Preview

Stocks traded like an Ali vs. Foreman fight yesterday, with large swings both up and down before finally settling lower for the day. The S&P 500 lost 0.8% with ten of its eleven sectors closing in the red. The Nasdaq Composite also closed lower, falling 1%. Both indices broke beneath their short term 21 day moving average and are approaching their respective 200 day moving average. Yesterday’s turbulent session began as Federal Reserve Chairman Jerome Powell gave remarks about his outlook for interest rates.

In his initial remarks yesterday, Powell suggested the need to further raise interest rates may be less necessary if the bond market continues doing the heavy lifting on its own, but the Fed stands ready if needed. His speech was briefly interrupted by protestors and when Powell resumed speaking, his comments seemed to be in stark contrast to the initial portion of his remarks. Powell said he does not believe monetary policy is so tight that it would raise the risk of a recession and that interest rates may need to remain at elevated levels for a prolonged period of time. The contrast in comments caused markets to whipsaw, confusing everyone. However, it could be simply that Powell, like the rest of us, is struggling to get a grasp on all the factors influencing the economy at the moment.

With wars in the Middle East and Ukraine showing no sign of ending anytime soon, President Biden last night addressed the nation. He is asking for more foreign aid for Israel and Ukraine. However, with no Speaker of the House, legislation cannot be brought to the House floor. The situation with the House is not only a problem for foreign aid, but we also have a potential government shutdown looming next month. The economic, political and geopolitical situations are making it difficult for markets to pick a direction and earnings season seems to be adding to the angst.

Looking at some economic data, existing home sales are coming under pressure. The latest report on existing home sales showed a slowdown from August to September of 2%. On a year-over-year basis, sales slowed over 15% which is the biggest slowdown in over a decade. Rising interest rates have certainly played a role with 30 year mortgages now pushing 8%. The rise in mortgage rates is a direct reflection of what is happening in the bond market where yields on the 10-year pushed toward 5%, hitting an intraday high on Thursday of 4.99%. The last time yields hit 10% was 2007.

Market volatility has been on the rise in the wake of all that is happening, with the VIX rising 11% on Thursday to 21.40. We’ve also seen a 9% runup in the price of gold in just the past couple of weeks as investors are seeking protection to further potential volatility As we head into what could be a volatile weekend with respect to the Middle East and look ahead to next week’s earnings, I’m not too terribly surprised to see some of this volatility or runup in commodity prices. In addition to gold’s recent run, crude oil is also on a tear, pushing $90 per barrel. That is an increase of 10% since hitting an intraday low of $80.20 on October 6^th.

On the earnings front, American Express
AXP
issued their 3Q earnings this morning, topping profit expectations. The company reported its sixth straight quarter of record revenue and said it continues to see strong overall spending, especially in travel and entertainment. In premarket, shares of American Express are little changed. Taking a look ahead, next week will be a big week for earnings with Google
GOOG
and Microsoft
MSFT
scheduled to report on Tuesday after the close. Facebook parent, Meta, will release their earnings on Wednesday and then Amazon
AMZN
reports on Thursday.

A couple other odds and ends I’m watching today include the auto industry. The United Auto Workers (UAW) and General Motors
GM
appear close on a tentative deal that would see an end the current strike taking place. Also, bitcoin is flirting with $30K as hopes increase for approval of an ETF.

Heading into the weekend, if you’re feeling a bit of unease with picking market direction, you’re not alone. Yesterday’s wild swings are suggestive of an uncertain market that’s prone to wild oscillations. This is why we repeatedly preach the importance of staying small and mechanical. The less emotion factoring into trading decisions, the better, and if there is one thing that can make investors emotional, it’s trading too big. Therefore, I would let the market sort itself out and as always, I would stick with your investing plans and long term objectives.

tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.