Market Breakdown for the week.
Hope all is well. It would be impossible to start this week’s update without mentioning the events in the Middle East that dominated the headlines. I, like many of you, have friends in Israel and terrorism has no place in our world. Looking at the event from a market perspective is no way meant to diminish the obvious human tragedy. The S&P 500 and the Dow posted fractional weekly gains while the NASDAQ fell slightly. Last night we had a rare “ring of fire” solar eclipse, the next one is 2039. I have broken down this week’s update using the three distinct parts of the shadow created by an eclipse.
Antumbra- A bright ring of light around an eclipsing body
Shocking geopolitical events create fear and cause short term volatility in the market. What we saw this week was to be expected. An initial flight-to-safety move in the markets, with government bonds, the U.S. dollar, and gold rallying. With the conflict being in the Middle East, oil jumped more than 4% last Monday on fears that supply could be disrupted. There is still light that can be found amidst the darkness. Looking back at past geopolitical events the market tends to experience very little damage when you look out 6 months later. By comparison, 6 months after both 9/11 and the 6 day war in 1967 the markets were up 6.7% and 6.1% respectively.
Penumbra- Only a portion of the light source is obscured by the eclipsing body.
We started earnings season this week. Earnings reports this year have been partially obscured by rising costs. With inflation trending down markets are hoping that corporations could start to reverse the trend of earnings decline. We have had a string of three straight quarters of earnings declines. There is reason for optimism as earnings season got into full swing on Friday. Three major U.S. banks reported third-quarter results, and each one exceeded analysts’ expectations for net income and revenue. Hopefully the big banks are indicative of the rest of the S&P 500 companies. As of Friday, analysts were forecasting that earnings for all companies in the S&P 500 would break the string of declines and rise slightly by an average of 0.4% overall
Umbra – Darkest innermost part of the shadow where light is completely blocked.
Thursday’s monthly U.S. Consumer Price Index (CPI) report was not good. While it showed little change in inflation, the underlying categories that feed into the overall CPI number headed in different directions. September’s overall annual figure of 3.7% was the same as the previous month, but housing and energy expenses rose while food costs slipped. The rise in housing costs served as a reminder of the upside risks to rates. Housing is a big part of core inflation which is the number the Federal Reserve is monitoring. The number further darkens the market’s hope for a Fed pause or rate cut in the near future.
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