DOW: Bullish Hopes before New Growth Are Dashed by -Dow’s Near Record Reversal, Financial Warnings.

Oct 8, 2022
VOT Research Desk

Key News – Insights and Analysis

The Market Perspective:

The Dow began this past week of October with the largest 2day gain in 2.5 years, and it completed the month with the second-largest upper wick ever recorded.

NFPs last week strengthened the pressure on growth brought on by central bank tightening, but this week’s focus will be on pressures from the recession and financial dangers.

Dow: The Strong Start to October and Q4 Disintegrated Quickly This week ended with risk trends that were significantly different from where they began. There was a particular seasonal influence at work given that the week also marked the beginning of the fourth quarter and the beginning of a new month (October).Accounting and other fund rebalancing activities tend to produce predictable tides in benchmark risk assets during the quarter-to-quarter transition. A capital reallocation can create artificial inflation in capital markets as a whole at the beginning of the new period. However, genuine fundamentals will eventually take over for a production run, and that current will only last so long.

The most recent instance saw the largest two-day S&P 500 rally since the transition that followed the pandemic. However, follow-through completely failed. Despite the fact that the decline in the second half of this week would not really take off until after the September NFPs, the turn was still impressive. It was the second highest intraweek reversal ever recorded, and the Dow Jones Industrial Average’s “upper wick” (1,158) this past week was its biggest since March 2, 2020.effectively stifles the nascent risk appetite run; however, a genuine bear run—or any directional move from this point on—likely requires a genuine fundamental patron.

I believe that the markets can use a lot of deep fundamental trauma to judge our progress given our current circumstances. However, it is essential to evaluate the seasonal circumstances that will see push and pull on the markets in the coming months before delving into the Fed’s commitment to its inflation fight or the likelihood of a severe recession. The weekly S&P 500 performance averages were the primary focus of many retail traders.

After a three-week slide, the 40th week of the year, which we just finished, has averaged a modest gain back to 1900.That coincides with what we’ve seen in 2022.History suggests another three weeks of slide ahead based on the course going forward, but the dispersion of historical performance is far too large to make this a reliable measure. On the other hand, the S&P 500’s October volume peak and VIX’s weak 41 volume peak tend to carry less of the weight of year-to-year thematic shifts. We are looking for signs of surrender as volatility approaches the 50 level. The fire is more likely to burn more steadily in the absence of that.

There was little attention paid to the systemic fundamental themes during the past week. The fundamental waters continue to get deeper. That probably made it possible for the market’s seasonality aspects to influence activity a little more actively. However, the fundamental agnosticism changed during the session on Friday. One of the global financial system’s most market-moving indicators is the US nonfarm payrolls report, which attracted a lot of attention this month.

There was serious potential for volatility in the form of job openings, ADP payrolls, and ISM service sector employment figures following this event, which came after a mix of results from previous releases. In the end, payrolls were mostly the same, with 263,000 new jobs added for the month and a 0.2 percentage point drop in the unemployment rate to 3.5%.If it weren’t for the fact that the Fed has reaffirmed its commitment to curbing soaring inflation at the expense of economic growth and even financial stability, that would appear to be a subpar report.

According to various members of the Federal Reserve—regional heads and board members—there is a willingness to accept an economic downturn and, without a doubt, a market uproar in order to maintain the fight against inflation. The cost of fixing on-set inflation is seen as significantly worse for the health of financial markets, so Fed officials have made it abundantly clear that they are willing to tolerate a great deal in order to limit rampant price growth. In the interim, the IMF’s World Economic Outlook (WEO) should provide us with an economic status update.

The prospect of yet another significant downgrade has already been hinted at by officials. In a provocation of an FX par, for instance, many will look at the relative views of regions, but I will be looking at this outlook with an eye toward the global picture of growth and stability.

IMF Interim WEO

We are generally concerned about the excessive use of leverage in the global financial system by investors, consumers, giant corporations, governments, and central banks. The associated costs also rise in tandem with rising rates. The signs of financial stability that are beginning to emerge around the periphery have piqued my attention. We will experience event risk in the coming week, which directly relates to larger concerns regarding the global economy’s health and financial stability.

A significant fundamental weight will be projected in the future in the WOE (World Economic Outlook) and GFSR (Global Financial Stability Report) semiannual updates. If you’re looking for other fundamental catalysts, important updates include the density of central bank talk and the US CPI. However, US bank earnings on Friday rank second in terms of market-moving potential, following the IMF’s updates.

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