Market Commentary
Equities closed lower on Monday amid rising fears of escalating conflicts in the Middle East and rising yields, which added pressure on markets. The 10-year Treasury yield rebounded above 4%, driven by the strong September jobs report, which added 254,000 new jobs and lowered the unemployment rate to 4.1%. Brent crude oil briefly surpassed $80 per barrel, the highest level since August, before cooling off as Israel reevaluates striking Iran’s oil reserves and after softening demand expectations from China.
Chinese markets, which had initially surged after stimulus measures aimed at reviving the economy were announced, suffered their largest decline since 2011, reflecting waning investor sentiment. As third-quarter earnings season kicks off this Friday, starting with major banks, Wall Street is projecting a 4.7% earnings growth. However, any significant underperformance could challenge the lofty valuations currently held by the S&P 500.
Although economic activity and jobs data have taken center stage in recent months, this week’s inflation reports—both CPI and PPI—will be crucial in confirming or challenging the Fed’s path toward rate cuts. Any uptick in inflation could introduce volatility, as it would reignite concerns about the need for sustained higher interest rates. The base case, however, is for a relatively uneventful report, continuing to show inflation’s steady decline.
Volatility has been on the rise, with the VIX climbing from 16 to 21 in just 10 days, signaling increased uncertainty and larger market swings. During this period, the S&P 500 has lost much of its short-term momentum, and market breadth has weakened, contributing to a more cautious outlook for traders in the near term.
Our Newton models suggest another week of favorable relative momentum for international equity markets compared to domestic, though all regions have seen some softening. Large Cap Value stands out as the most attractive style box, according to our models, even as value in smaller companies has fallen out of favor.
Economic Releases This Week
Monday: Fed Governor Bowman Speaks, Consumer Credit, St. Louis Fed President Alberto Musalem Speaks
Tuesday: NFIB Optimism Index, US Trade Deficit, Atlanta Fed President Bostic Speaks
Wednesday: Dallas Fed President Lorie Logan Speaks, San Francisco Fed President Mary Daly Speaks, Minutes of the Fed’s September FOMC meeting.
Thursday: Consumer Price Index, Richmond Fed President Barkin Speaks
Friday: Producer Price Index, Dallas Fed President Lorie Logan Speaks
Stories to Start the Week
Hurricane Milton, the second natural disaster to hit the Southeast in two weeks, is expected to make landfall as a Category 3 as early as tomorrow night.
Google must let Android users download apps outside its store stated an injunction in the company’s case against Epic Games.
The firm Starboard Value has amassed a stake in pharma giant Pfizer, which has struggled after reaching new heights during the pandemic.
Some Spirit Halloween stores will convert to Spirit Christmas stores after the fall holiday.
What is Newton?
Our Newton model attempts to determine the highest probability of future price direction by using advanced algorithmic and high-order mathematical techniques on the current market environment to identify trends in underlying security prices. The Newton model scores securities over multiple time periods on a scale of 0-20 with 0 being the worst and 20 being the best possible score.
Trend & level both matter. For example, a name that moves from an 18 to a 16 would signal a strong level yet slight exhaustion in the trend.
Technical trading models are mathematically driven based upon historical data and trends of domestic and foreign market trading activity, including various industry and sector trading statistics within such markets. Technical trading models, through mathematical algorithms, attempt to identify when markets are likely to increase or decrease and identify appropriate entry and exit points. The primary risk of technical trading models is that historical trends and past performance cannot predict future trends and there is no assurance that the mathematical algorithms employed are designed properly, updated with new data, and can accurately predict future market, industry and sector performance.