Core Consumer Price Index inflation came in at a 4.0% annual rate in October, the Bureau of Labor Statistics reported this morning, November 14. Economists had projected a 4.1% annual rate for October. And that 1 basis point, small as it was was enough to send stocks and bonds soaring. At the close, the Standard & Poor’s 500 was up 1.91%.
I expect Tuesday’s Consumer Price Index report for October to be critical in determining whether the Christmas rally narrative can be sustained.
Moody’s Investors Service turned negative on the United State’s credit rating outlook Friday after the market close, citing risks to the nation’s fiscal strength and political polarization. The credit rating company lowered the outlook to negative from stable, even as it affirmed the nation’s rating at Aaa, the highest investment-grade notch.
My bets on rising volatility have been hammered in the last few days. The December 20 Call Options on the CBOE S&P 500 Volatility Index (VIX) at $280 a contact dropped another 21% today to $121 a contract. The January 17 Call Options at 17 that I bought for $268 closed at $211, down another 16%.The VIX itself ended the day at 14.23, down 7% for the session. It’s sure hard looking at losses like this. But I would remind you that the VIX is very volatile. The volatility index was at 21.71 on October 20. And that the calendar is marked with two big events that could reunite financial market volatility, one courtesy of the House of Representatives and the other courtesy of the Federal Reserve.
Eight days ago Federal Reserve chair Jerome Powell set off a financial market rally when the markets thought they heard him signal that the Fed was done with interest rate increases. Today, November 9, Powell very clearly said (at an International Monetary Fund conference in Washington) that the Fed won’t hesitate to raise rates if a hike is needed. Other Fed officials have recently said the same thing.
On Wednesday the Food and Drug Administration approved Mounjaro from Lilly, as an obesity drug, after clinical trials showed that patients lost an average of 18% of their body weight. The drug will be marketed as Zepbound in the obesity market. This puts Lilly into direct competition with the wildly popular Wegovy weight-loss drug from Novo Nordisk (NVO)
It’s not a big shift, but it may be a trend. The weekly initial claims for unemployment report–a new one comes out on November 9–has recently shown a very gradual weakening of the U.S. jobs market. Last week in the November 2 report for the week ended October 28, the number of new claims for unemployment rose to 217,000, an increase of 5,000 from the previous week. The four-week moving average, which smooths week to week noise–climbed 2,000 from the four-week moving average the prior week. Will tomorrow’s November 9 report show a continuation of this very subtle trend?
Stocks had a mixed close today, November 8. The Standard & Poor’s 500 was up just 0.03% and the NASDAQ Composite actually fell by 0.05%. The small-cap Russell 200 lost 1.17% as small company stocks continue to send a warning sign about the economy and bond yields. I think it would have been much worse without a strong action for 10-year Treasuries today A successful auction–lots of demand at lower yields–of $40 billion in 10-year notes took the yield on the 10-year Treasury down 6 basis points to 4.51%.
Credit card debt surged again during the third quarter and so did the number of people missing payments, according to data released today, November 7, by the Federal reserve Bank of New York. Credit card balances rose by $48 billion in the third quarter to a record high of $1.08 trillion The $154 billion year-over-year gain in debt was the largest such increase since of this beginning of this data in 1999.
The small-cap Russell 2000 fell today by 1.29% at the close. All the other major indexes were up: the Standard & Poor; 500 gained 0.18%; the Dow Jones Industrial Average added 0.10%; the NASDAQ Composite tacked on 0.30%; and the NASDAQ 100 climbed 0.37%. I find this “interesting.” That’s “interesting” as in “watch out” and not “interesting” as in “I’m buying this rally.”
The financial markets continue to swing from extreme to extreme in sentiment. The markets were wrong at the beginning of last week. It’s likely the markets are wrong again.
