Stocks ROAR Back!

Here’s a link to a Bloomberg article on Apple News today.

US stocks stormed back from losses sparked by a hot inflation reading on speculation the yearlong selloff had potentially reached a bottom.

The latest data added to evidence the harsh monetary medicine has yet to take hold and comes on the heels of last week’s payrolls figures that showed unemployment rate at a five-decade low in September.

Market bets on rates now lean toward back-to-back 75 basis-point hikes at the next two Fed meetings. They now expect the central bank to push rates past 4.85% before the tightening cyle ends. The current rate is 3.25%.

Given the latest CPI report, “any continued pick-up in energy prices can get us to a new high” in headline inflation, said Steve Chiavarone, senior portfolio manager at Federated Hermes. That “could very well spook markets as it pushes back any expectation of peak inflation, peak Fed hawkishness and could force the market to contemplate a terminal fed funds rate above 5%. All that would raise the risks of more bond pain, more equity pain, and a greater risk of financial accident.”

I just do not understand why the markets are ROARING when the CPI says we’re FUKKED??

'38Packard

4 Likes

It is just one day of trading. The story can not be told by one day of trading. “Roaring” is a word in a headline.

This market has ultra high risk to the down side. The 200 has just begun again to trend down more sharply.

News reporters get things wrong with causality? No way! Way?

The lemmings stampede from one headline to the next. If there is no headline, they will make something up as an excuse to stampede.

Steve

2 Likes

There were huge bearish bets - shorts, put options - laid on at the beginning and middle of September, betting on this very inflation report. I believe that because this inflation report “met” expectations (wasn’t worse), many hedgies covered their shorts today. I believe that what happened today was the unwinding of a crowded trade.

5 Likes

Nailed it!! Here’s a link that confirms your explanation. Thanks!!

It was a massive rally, and one that came out of nowhere. And it’s left market observers like yours truly wondering what the heck just happened. There wasn’t any new data, no headline-making speeches, no event that occurred just after the open to spur such a move. It literally came out of nowhere—and left us grasping for possible reasons. “Today’s market reversal was a head-scratcher,” writes Oanda’s Edward Moya. And he’s not wrong.

The most likely explanation is a technical one. The S&P 500, at its low, had retraced half the gain it had made from the Covid low in 2020 to its peak in January 2022. That’s an important level for market technicians, and when it was hit, it appeared to set off a wave of profit-taking in put options that had become profitable, according to Bloomberg, which translated into actual buying, especially as those who were short the market got squeezed. And the rest, as they say, is history.

It’s an unsatisfying reason, especially in the midst of a bear market, and everyone looking for a narrative that could help reverse the painful losses. But sometimes markets move more because of positioning and trading, not for any fundamental reason.

Sometimes, even a 3% gain is just noise.

'38Packard

8 Likes