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Your Money - Stay the Course

It’s been a rough year for stocks and the start of this week saw a nice reprieve with an incredible 2-day 5% catapult upwards in the markets, the biggest increase since March 2020 but it didn’t last long. Yes, another bear market rally stalled heading into today’s US jobs report. The Dow finished the week higher by 2% alongside the S&P 500 up 1.5 % followed by a .75% lower figure on the NASDAQ. The TSX ahead 1%.

So, what are we looking at? Is the Fed having an impact? … real estate is slowing! commodities like lumber and copper prices have dropped significantly, all signaling a slowdown. Now it’s the labor markets turn to indicate whether Chairman Powell’s actions are having an impact. A hawkish Fed may not be deterred by a spate of inflation-friendly data  But a slowdown in U.S. job growth would really give us clarity, yet that didn’t happen as September non-farm payrolls came in at 263,000, wages still increasing and unemployment still persistently low at 3.5% as rapidly rising interest rates leave businesses more cautious about the economic outlook, but overall labor market conditions remain tight, providing the Federal Reserve with cover to maintain its aggressive monetary policy tightening campaign for a while and that is why bond yields increased alongside of the dollar, but crushing stocks today.

But we’re observing some other interesting actions brewing under the surface of this market. Energy stocks have barely broken out of their long-term baselines. We believe we are in the very early stages of a secular uptrend for Energy. Check out the chart on the XLE which demonstrates this recent move.

Staying with banks. JPMorgan, Morgan Stanley, Citigroup, and Wells Fargo showed a slide in net income after turbulent markets put a squeeze on investment banking activity and lenders increased their rainy-day funds for loan losses from borrowers who fall behind on payments. "We're in an environment where it's kind of odd," said JPMorgan Chief Executive Officer Jamie Dimon, who said that while the bank was "hoping for the best, we always remain vigilant and are prepared for bad outcomes." Across the pond Central bankers echoing the same problem globally have been battling surging inflation which is likely to cause an economic slowdown in the Eurozone and Asia. The Federal Reserve has increased the benchmark interest rate from near zero in March to the current range of 3.00% to 3.25% and more is to come. Consensus is for rates to end up near 4.75%. Rising rates tend to give cover for bank profits, but the greater risk of an economic downturn led by high inflation, supply-chain bottlenecks and the war in Ukraine could impact future earnings.

Meanwhile, the U.S. dollar index (the DXY) dropped to the $ 112 mark yesterday alongside of bond yields retreating before regaining the strength to the end the week at the 113 level. Gold continued its slide this week pulling back to around $1,650 per ounce. WTI crude prices fell to the mid-$80s region and the yield on the 10-year Treasury advanced to about 4%. The TSX finishes the week down 1.38%

Looking ahead to next week, we have some notable players in key sectors that will report earnings. They are going to really give us the barometer reading of both the equity markets and the broad economy.

We can’t choose the market we’re given, we can only control how we adjust to it.

Stay the Course!