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Coming into last week’s trading, traders were a bit on edge because of how the prior week had concluded. The tariff issue and trade uncertainty with China had reasserted itself into the market dialogue in a major way. This of course had spooked traders with many opting to sell first and ask questions later, leading markets to end that week at session lows. As investors continued to digest the new tariff news, many signs pointed towards a choppy day of trading once markets opened on Monday. However, as the market futures began trading on Sunday evening, the futures action pointed toward a nice gap higher at the open and luckily for investors this is exactly what we got. After trade tensions flared on Friday, over the weekend headed into this past week of trading, the Administration dialed it back a bit trying to project some calm to ease the market’s fears. Fortunately, the more calm messaging was well received by markets and this is what propelled markets to open and ultimately close much higher in Monday’s trading. Monday’s leap higher set the market on a path to close higher for the week, however, this weekly jump did not come without some volatility. Throughout the week the VIX continued to spike before ultimately cooling on Friday. Fortunately, earnings reporting season had begun and the strong reports from the major Financials provided some support to markets even as whispers of credit issues at some of the smaller players helped to only further stoke the volatility. With the added volatility and uncertainty, markets chopped around in a range between 6550 & 6725, but ultimately finished higher on the week. The significance of seeing markets end last week higher should not be understated. With all of the questions of market valuation, potential credit issues, and then a significant flare up on the trade front, this combo had all the makings of knocking this market off track and leading to a steeper decline. But buyers allowed the short reset to occur and then they came back to the market buying stocks on the dip once again. Last week’s action should be interpreted as very encouraging.
As we have mentioned in previous editions of this newsletter, historically, October has been the most volatile month for the S&P 500. About halfway through the month now, this is being reflected in the technicals thus far. To begin the month, the index rallied to several new highs, closing above 6700 several times but then came the recent volatility. Last week provided a significant technical test for markets as the S&P 500 traded down to the lows of the previous Friday. This key level of support held as the market quickly rallied and closed well above it. We may be in for additional tests of this support level around roughly 6550 but it will be important to see the market continue to close above this level to preserve the uptrend. Regarding the market’s trend, the uptrend is still unshaken according to the trendlines. The index itself is still above both the 50 & 200 day moving average and the 50 is remaining above the 200 as well. Each of these are encouraging factors signaling that our longer term momentum is still intact. Now, we did lose a bit of breadth in the recent pullback. The percentage of S&P stocks above the 200-day moving average has slipped a bit, now around 60%. Prior to the pullback we were closer to 65-67%, however, still seeing 60% of the index’s constituents in long term uptrends is still positive. In the week ahead, it will be important to keep an eye on the technicals as there are plenty of market catalysts that lie ahead that will move markets. Continuing to confirm the trend strength from the technicals is something that all traders should be watching closely.
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Key Events to Watch For
- Q3 Earnings reporting season rolls on this week as several major companies are scheduled to report their earnings results this week. Last week’s earnings reports that kicked off the reporting season were broadly quite strong and buoyed an uneasy market. The strong results provided support for investors amid elevated volatility and questions around credit risk to the market. This week will feature earnings reports from NFLX, TSLA, GE, RTX, & more. The reports due this week are sure to be a major catalyst for price action.
- Crucial inflation data on deck, maybe? Once again, we are playing the guessing game about whether or not we will receive a government report on inflation. At this point, several key economic reports have been delayed due to the government shutdown. With the next Fed meeting coming up later this month, this data points are crucial pieces of data that the market will need to digest but at this point they are all on hold. On Friday, should the shutdown be resolved, we will get the CPI inflation print from September. The Street’s expectation is that this report will show Core CPI rising YOY by 3.1%. However, given the lack of any signs of progress from Washington in resolving this shutdown, I anticipate that this report will likely be delayed as well. With that said, should it arrive on time and show a cooler inflation number, markets will react favorably to this.
Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.
Thanks,
Blane Markham
Author, Weekly Market Periscope
Hughes Optioneering Team
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