This past week’s economic releases were mostly bearish, but there were a few positive surprises as the blowout pending home sales number, the ISM manufacturing PMI and personal spending numbers all strongly beat expectations. The number of new jobless claims also surprised to the upside for the third straight week coming in above 350,000 again, which could be a warning sign ahead of next week’s jobs report. Meanwhile, both the Core PCE Price Index and the ISM Manufacturing Price Index surpassed the consensus estimate, warning of a more sustained period of upward price pressure. German inflation hit a 30-year high showing that the inflation problem is global. One has to wonder how much longer the Federal Reserve and its banks can continue to contain the price of metals, one of the purest hedges against inflationary periods. A silver mining company in the United States sued JP Morgan this week for price manipulation in the silver markets. If investors are going to be subject to runaway inflation, which we forecast into 202 due to current Fed policies, then they deserve the ability to hedge their wealth against such danger. Stagflation is our current forecast into 2024: runaway prices and slowing growth.
The market’s short term outlook turned bearish across the board as the major indices dropped back below key technical levels, with the Nasdaq and the S&P 500 even hitting new correction lows. The S&P 500, the Dow, and the Nasdaq are now all below their 50-day moving averages, but the benchmarks are still holding up above their 200-day moving averages. Small-caps started the week positively, and while the selloff took its toll on the Russell 2000 as well, the benchmark is trading clearly above its correction low, despite closing the week dangerously close to both its moving averages. The Volatility Index (VIX) spiked back above the key 20 level amid the yield-induced plunge, but on a positive note, it remained well shy of its September high and closed the week near 21. Short term, we expect Friday’s rebound to continue into this week where markets are expected to make a decision into the debt ceiling expiration mid-month, October 18.
The first full week of October will be action packed with all eyes on the job market and services sectors, and this week’s surge in volatility could mean that trading activity will remain elevated. The week will start off with the highly-anticipated OPEC meeting, possibly leading to more volatility in the commodities and energy sectors. The ISM services PMI will be out on Tuesday, the ADP payrolls number will hit on Wednesday’s session, the Challenger job cuts estimate is scheduled for Thursday, and the government jobs report and the Treasury currency report will come out on Friday.