The Dow Jones Industrial average soared 1.47% today–or 520 points–as the Federal Reserve’s favorite inflation measure showed that inflation continued to fall in October. The inflation news, the market decided, was exceedingly good news for the old economy stocks in the Dow 30. In contrast, the new economy stocks in the NASDAQ Composite fell 0.23% on the day.
Hedge funds are unwinding some of their overweight positions in technology stocks after their concentration in the sector reached record levels, according to Goldman Sachs. Net selling in tech, media and telecom stocks last week was the most since July, Goldman Sachs wrote in a note today. Information Technology (XLK) and Communication Services (XLC) were the most net sold sectors, Goldman said. And, among subsectors, sales of software stocks, chips and chip equipment and interactive media and services “were by far the most net sold.” The outweighed buying in IT services and media.”
Oil declined for a third day with U.S.benchmark West Texas Intermediate falling another 0.73% to $74.99 a barrel. International benchmark Brent crude fell 0.65% to $80.06 a barrel. OPEC meets on November 30 and there’s good reason to doubt that the cartel will agree to cut production even in the face of falling oil prices.
Initial claims for unemployment fell by 24,000 to 209,000 in the week ending November 18, the Labor Department said n Wednesday. That was the biggest drop since June. Continuing claims, the number of people continuously receiving unemployment benefits, slipped to 1.84 million in the week ended Nov. 11. That was the first drop in two months.
No turkeys here in Italy so we’re making a pork roast with rosemary. At a farmhouse in Umbria with friends for the holidays. Someone saw a wild boar today on her walk in the vineyards. Back in Venice on Saturday. Back posting tomorrow. I wish everyone a great holiday.
I’m trying to decide if we’re watching a legitimate rally or a classic bear trap. If this rally is real, and likely to run for a while, investors should be putting cash to work even at market highs. If it’s a bear trap-you know one of those upward moves designed to pull in cash from the sidelines just before green turns to red in the market, then you ought to be using this moment as a selling opportunity, taking profits, and building cash for better barging down the road. A new survey by Goldman Sachs shows concentration in big tech stocks is at a record high. What does that mean?
More news this morning pointing to a slowing economy. Initial claims for unemployment for the past week rose 13,000 to 231,000, the Labor Department Reported this morning. That’s the highest weekly figure in three months. And is yet another sign that the economy is cooling. Which would encourage the Federal Reserve to call an end to it interest rate increases and, maybe even, start to cut rates relatively soon. At least that’s how the bond market read the numbers.
Well, you could knock me over with a feather! The House of Representatives passed a clean Continuing Resolution to continue funding the federal government after Friday at midnight. Don’t get all dewy-eyed and start talking about a return of functional government. The House bill, which is expected to pass and Senate in the next day or two and be signed by the White House with well over 10 hours to spare before the government shut down, only extends funding until January 19 (for 20% of the government) and February 2 (for the other 80%.)
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%.
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.