Yesterday was a cautious but solid session, which helped Utilities (XLU) and Consumer Staples (XLP), along with PepsiCo’s (PEP) earnings report.  

The S&P has bounced nicely from 4,200; it needs to get above 4,414 now, as it also fills a sizable gap.

Breadth

However, it was a marked improvement for market breadth, especially the up volume on the NASDAQ Composite. It’s clear folks on the sidelines are getting antsy.

Map

The session was even more impressive, considering how several mega-cap names lagged. Crude oil was lower on the day; as a result, oil-related stocks struggled.

I’m watching Financials (XLF), which could have the most untapped value.

Yes, Speak

Don't speak, I know just what you're sayin'

So please stop explainin'

Don't tell me 'cause it hurts

Don't speak, I know what you're thinkin'

I don't need your reasons

Don't tell me 'cause it hurts

-Gwen Stefani

Usually, when the Fed speaks, the market hides for cover, but suddenly Fed officials are not breathing fire.

Now, there is less than a 10% chance of a rate hike next month, down from more than 40%.

Even as the Atlanta Fed GDP tracker moves back above 5%, everyone is making nice(r).

Fed’s Kashkari still sees potential soft landing.

Fed’s Bostic says no more rate hikes.

Portfolio Approach

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Today’s Session

The bond market continues to un-invert, called “bear-steepening,” which historically means we are moving closer to recession.  Sadly, this might be the only way to take the Fed off the table.

PPI comes in hotter than expected, but as we peel away the layers, the results are more or less in-line.

PPI Year to Year	Actual	Consensus	August
Headline	2.2%	1.6%	1.6%
Core	2.7%	2.3%	2.2%

United States Producer Prices Change

United States Producer Prices Final Demand Less Foods and Energy YoY

The big jump in gasoline driving headline month to month results.

PPI Month to Month	Actual	Consensus	August
Headline	0.5%	0.3%	0.7%
Core	0.3%	0.2%	0.2%

United States Producer Price Inflation MoM

United States Producer Prices Final Demand Less Foods and Energy MoM

But stripping away the stuff the Fed ignores, PPI edged slightly lower.

United States Producer Prices Final Demand Less Foods, Energy, and Trade Services YoY

Comments

I don't think they should raise rates, but the Fed was so wrong at the start of the inflation bubbly, I suspect they will be wrong again. Tim Houska on 10/11/2023 10:06:07 AM

Not finished hiking. The Fed has given no clear direction or statements that they are finished hiking. What statements from the Fed would lead anyone to think otherwise (other than media's red herrings)? Turn off the TV. Cornelia Ullmann on 10/19/2023 1:33:11 PM

I think the Fed will pause next month but will be threatening a 25 basis point hike by the end of the year. Ernesto Lazalde on 10/25/2023 2:18:51 PM

I think they will raise one more time. William John Collier on 10/25/2023 4:12:21 PM

no probably not Mike Jones on 10/28/2023 12:04:48 PM

Until energy prices recede, inflation will continue. John Kerhlikar on 10/31/2023 1:19:59 PM

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