Markets have been up for a month, profits on deck


Markets performed well to start another week – our heaviest earnings reports so far this quarter – which is off to a slow start. Waiting for income from Google Alphabet, MSFTMicrosoft, AAPL Apple and Amazon AMZN in the coming days, we see a few key names popping up here and there.

The Dow closed +417 points on the day, +1.34%. The blue-chip index is now up +7.65% over the past month, even higher from its September 30 low. The S&P 500 wasn’t too bad today either: +1.19% (+3.81% last month), while the Nasdaq is up +0.86% – +1.39% since this time a month ago, although +630 points higher than its mid-October low. The small cap Russell 2000 headed north +0.35% on the day, a very respectable +5.59% for the month.

Apple’s upcoming results should be interesting; even today (in the fourth quarter), the company announced price increases for Apple Music and Apple TV+. This follows a price hike for new iPhones 14 models recently. Is the world’s biggest gadget maker likely to post less than impressive numbers this quarter? With difficulties in its Chinese market and declining in-store sales in the last quarter, this would be seen as a possibility, although Apple is a very reliable earnings beater.

Earlier today, we saw new data from PMI Manufacturing and Services – both of which came not only in the light of expectations, but below the 50 level between growth and contraction. Manufacturing for October came in at 49.9, down from the expected 51.8 and unrevised 52.0 reported last month. It is the first time that manufacturing has been below 50 since the pandemic, which is the only reading below 50 since 2013.

Services came in at just 46.6, a far cry from the expected 49.7 and revised down from 49.3 a month ago. Weak customer demand and – in what could be a first in employment data this cycle – employment falling for the first time since June 2020 are the key findings here. Companies apparently don’t rehire departing employees as often. But it’s the lowest level of activity we’ve seen since September 2020.

The Fed wants to see a plurality of these types of economic data before changing its current trend to higher interest rates. We frankly haven’t seen enough data pointing directly to labor market weakness ahead of next Wednesday’s latest interest rate hike to expect anything more than a 75 basis point (bp) increase, at 3.75-4.00%. Markets have been pricing this – and then some – over the past 2-3 weeks, depending on the index, but don’t look set to revisit those lows any time soon.

One possible scenario that could spook markets over the next couple of weeks from here seems to be simply a matter of bad timing: if the Fed on Nov. 2 hikes 75 basis points as expected – and the numbers for employment two days later show a big leg down (say, sub-100K after posting 263K last month) – this could reinforce the nagging fear that the Fed will tighten too far too fast, and they won’t see not what they broke before it was too late.

But even if all of these predictions somehow came to pass, any tremor the markets felt on such a notion would be easily drowned out by subsequent dovish language from the Fed. They would hint at a slowdown or a halt, but probably not a pivot, and before you know it the markets would be back to racing.

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