Market Trends: Earnings and Inflation Disrupt 'Goldilocks' Scenario
Market Decline Factors
The market has seen a downward trend due to a combination of disappointing tech prints with MSFT down by 6% and META by 4%, poor liquidity as noted by Goldman Sachs' trading desk, and Core PCE posting its biggest monthly gain since April. These factors have disrupted the 'Goldilocks' narrative.
Inflation Surprises and Rate Cuts
Inflation surprises have been on the rise post rate-cut, supporting the argument for a slower pace of rate cuts. Goldman Sachs' trading desk has noted that market volumes remain strong, with a 14% increase compared to the 20dma. However, the S&P top of book is poor compared to the start of the week.
End of the Month Market Trends
The end of the month has seen a significant decline for Nasdaq, pushing it into the red for October alongside other major indices. This decline may not be surprising considering that EPS expectations have been guided lower for the last six months.
Hedge Funds and Major Stocks
Hedge funds have seen losses on their VIP Longs offset by gains on their biggest shorts. All the MAG7 stocks were lower, led by MSFT, META, and NVDA. The basket of MAG7 stocks erased most of the month's gains.
Major Indices and Treasury Yields
The weakness in stocks may not come as a shock considering the massive surge in Treasury yields this month. The yield curve flattened significantly in October, suggesting fears of a policy error. Meanwhile, mortgage rates have soared back above 7.00% since The Fed cut.
Dollar and Gold Trends
The dollar experienced its biggest monthly rise since September 2022, despite this, gold also exploded higher in October, reaching a new record high. This has resulted in a significant decoupling between the dollar and gold this year.
Bitcoin and Oil Prices
Despite a drop today, Bitcoin had a significant month, rallying up to record highs near $74,000. BTC ETF inflows have been substantial in October. Oil prices have also rebounded on Israel-Iran retaliation headlines, lifting WTI into the green for the month.
USA Sovereign Risk
Since The Fed cut rates, USA Sovereign risk has seen a significant increase. This is not exactly a show of support from the market. Additionally, there is a need to brace for a structurally higher VIX.
Bottom Line
The market trends have shown a significant shift away from the 'Goldilocks' scenario due to various factors including disappointing tech prints, poor liquidity, and inflation surprises. Major stocks and indices have seen a decline, while the dollar and gold have seen an increase. Bitcoin and oil prices have also seen a rise, while USA Sovereign risk has increased. This paints a picture of a volatile market with potential for further changes. What are your thoughts on these market trends? Do share this article with your friends. Remember, you can sign up for the Daily Briefing which is delivered every day at 6pm.
