The Week In Review 10/16/2023

“The difference between winning and losing is most often not quitting.” – Walt Disney

Last week was a week full of news… first we got news that Israel declared war on Hamas after a surprise attack launched by Hamas the previous weekend. The potential for a wider regional clash weighed on sentiment last week but reports so far give the impression that the Israel-Hamas war is still a two-party conflict.

Then we got more inflation news… last week’s CPI report and Fed-speak led to positive movements in the broad indices the first part of the week, with volatility taking over as the week progressed. The CPI report contained favorable data, which could persuade the Fed to leave the federal funds rate at its current level at its November meeting.

Core CPI, which strips food and energy prices from the index, rose 4.1% year-over-year, continuing its deceleration. The producer price index (PPI) saw a rise, climbing 2.2% from a year earlier.

Geopolitical angst mounted on Friday following news that Israel warned 1.1 million residents in the northern Gaza Strip to evacuate within 24 hours, which was presumably a pretense to a ground attack in Gaza that could escalate the war. That created some nervousness in the markets, which also heard Iran's foreign minister say that Israel's continued siege of Gaza "will face reactions in other areas."

The stock market still fared okay last week, aided by a decline in Treasury yields and some technical buying interest related to the idea that the market was oversold and due for a bounce. Gains were registered in the first half of the week, but buyer conviction fell by the wayside as it got closer to the weekend.

While this week's Producer Price Index and Consumer Price Index reports were not as friendly as investors hoped, the 10-yr note still did well with the help of safe-haven flows and expectations that inflation rates will improve in coming months as higher rates work into slowing the economy. The 2-yr note yield fell one basis point this week to 5.05%, but the 10-yr note yield declined 15 basis points to 4.63%.

The Treasury market also weathered some relatively disappointing auction results last week for the 3-yr note, 10-yr note, and 30-yr bond. Each was met with relatively soft demand, which came to a head on Thursday following the 30-yr bond auction, prompting a noticeable back up in rates. When geopolitical angst picked up on Friday, however, a rush of safe-haven flows repaired a lot of the weakness following Thursday's sell off.

Treasuries were also digesting comments from several Fed officials this week who spoke to the idea that the rise in long term rates had tightened financial conditions and may give them leeway to precede carefully on future policy.

Oil prices climbed this week in another manifestation of geopolitical worries. WTI crude oil futures jumped 6.0% to $87.80/bbl.

Eight of the S&P 500 sectors registered a gain with energy (+4.5%) leading by a wide margin. The consumer discretionary sector (-0.7%) saw the largest decline.

Earnings season kicked off last week with generally good results, highlighted by JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and UnitedHealth (UNH).

In other news, the House failed to elect a new Speaker last week. Rep. Steve Scalise (R-LA) prevailed in the GOP conference vote but withdrew his name after failing to get enough support. This leadership void is a reminder that the House can't conduct business, which raises the uncertainty about Congress reaching a budget agreement before the Nov. 17 deadline.

Market Snapshot…

• Oil Prices – Oil prices turned in one of their best days last Friday. West Texas Intermediate crude futures (WTI) surged 5.77% to close at $87.69 barrel. Brent crude climbed 5.69% to close at $90.89 a barrel.
• Gold– Gold prices turned in the strongest one-day advance since December 2022 with a 3% gain, the most since mid-March. Spot Gold was up 3.24% at $1,929.21, while U.S. gold futures settled 3.1% higher to $1,941.60. Silver closed at $22.895.
• S. Dollar– The dollar index ticked up 0.8% to 106.69, its biggest one-day rise since March 15. Euro/US$ exchange rate is now 1.057.
• S. Treasury Rates– Treasury yields fell as investors weighed the interest rate outlook. The yield on the 10-year Treasury note was down by nearly 9 basis points at 4.625%.
• Asian shares were down in overnight trading.
• European markets are trading higher.
• Domestic markets are also trading higher this morning.

Earnings reports will pick up their stride this week with 54 S&P 500 companies reporting. We will hear from more financials: Charles Schwab, Goldman Sachs, Bank of America; as well as companies in other sectors: Proctor & Gamble, Philip Morris, AT&T, and Netflix, among others.

This week will be relatively light in economic news… we will receive retail sales and industrial production on Tuesday, and new housing starts and existing home sales data on Wednesday and Thursday.

Have a great week!!

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