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Stocks rose on Friday despite a tumble in Amazon shares after economic data pointed to slowing inflation and a steady consumer.
The Dow Jones Industrial Average closed 828.52 points, or about 2.6%, higher at 32,861.80. The S&P 500 added nearly 2.5%, to close at 3,901.06. The Nasdaq Composite ended up about 2.9%, to close at 11,102.45.
On a weekly basis, the major indexes made notable gains. It was the fourth positive week in a row for the Dow, a first since a five-week streak ending in November 2021. The 30-stock index is up 5.7% this week in its best performance since May. It’s also on track for its best month since January 1976.
The S&P 500 and the Nasdaq are up 3.9% and 2.2%, respectively, for the week.
The stock market has fractured this week as investors dumped technology shares following weak results and outlooks from Microsoft, Alphabet and Meta and rotated into economically sensitive stocks that will benefit if the U.S. economy can skirt a recession.
At the same time, investors have found hope in data that came out over the course of the week indicating inflation may be easing, increasing optimism that the Federal Reserve could break from its trend of 75 basis point rate hikes after the November meeting.
“Inflation data really wasn’t that bad. The earnings have been not great, but not awful,” said Megan Horneman, chief investment officer at Verdence. “When you have that middle of the road, that helps equity markets.”
Amazon plunged by 6.8% after the company posted weaker-than-expected quarterly revenue and issued disappointing fourth-quarter sales guidance Thursday. Apple shares ended Friday up 7.5%. The tech giant reported weaker-than-anticipated iPhone revenue on Thursday, but beat Wall Street estimates for quarterly earnings and revenue.
Apple and other more positive performers, like Intel, have given investors footholds within what some see as a particularly tumultuous tech sector, subsequently providing upward pressure to the tech-heavy Nasdaq, said Jay Hatfield, CEO of Infrastructure Capital Management. He said the market was also boosted by oil giants Chevron and Exxon Mobil, up about 1.2% and 2.9%, respectively, after both reported beating expectations before the bell.
“Apple’s really the lone star, if you will, of the mega-cap tech stocks,” Hatfield said. “It’s just a unique market where bad is terrible, but OK is good, so, on a relative basis, it’s spectacular.”
The market got a boost after the core personal consumption expenditures price index in September increased 0.5% from the previous month and 5.1% from a year ago, still high but mostly in-line with expectations. This is the preferred gauge of inflation for the Federal Reserve. Personal spending rose 0.6%, more than expected, the data showed.
It's Friday, stocks pushed higher as Apple's boom outweighed Amazon's miss.
It was a volatile week, starting off with Chinese tech shares (KWEB) getting slaughtered on Monday but coming back somewhat during the week, then several high profile big tech companies disappointing investors: Microsoft (MSFT), Alphabet (GOOG), Meta Platforms (META) and Amazon (AMZN). Apple (AAPL) saved the day in what was otherwise a disappointing week for mega-cap tech stocks.
And this "tech wreck" despite the big rally in US long bonds this week with the 10-year Treasury note yield declining to 4.01% after making a high of 4.33% last week:
But it wasn't all bad news for tech stocks, some of them did produce decent earnings reports (SHOP, NOW, INTC, etc) and the Nasdaq is up for the week even though it remains weak on a weekly basis:
Apart from tech stocks, it's looking good with Industrials (XLI), Utilities (XLU), Real Estate (XLRE), Financials (XLF), Staples (XLP) and Healthcare (XLV) all posting solid gains this week:
This helped propel the Dow and S&P 500 higher this week:
Also worth noting, Robert Hum of CNBC reports that despite big misses, earnings are decent so far this quarter:
Halfway through earnings season, 3Q profits are up about 4% despite high-profile misses
We’re halfway through earnings season, according to Refinitiv.
Here’s where were stand: There have been more misses so far this season, with 22% of companies that have reported falling short of earnings estimates and 33% shy on revenue, according to Refinitiv.
That’s definitely higher than trends over the past year. The average for the four previous quarters is 18% missed on earnings and 26% missed on revenue, according to the data provider.
But despite the disappointing performances, the current earnings growth rate still hovers around 4% for the third quarter. That’s right around where it was before the season started. It’s currently at 4.1% vs. 4.5% on Oct. 1, it said.
Within that average, though, are some steeper drop-offs. The growth rate for the financial sector has sunk about 7 percentage points since the start of earnings season. The same goes for industrials and materials. Communication services has fallen about 5 percentage points. And this may surprise you: Tech is only down 2 percentage points.
While the third-quarter growth rate has been stable, fourth-quarter estimates have dropped much more.
Profits are expected to rise 2.6% in the current quarter, compared with an estimate of 5.8% growth when the month began.
Next week, we have the November Fed meeting and everyone is waiting to see if it will hike by 75 basis points (consensus) or follow the Bank of Canada and Reserve Bank of Australia and "surprise the market" by hiking rates 50 basis points and temper down subsequent rate hike expectations.
Most economists polled by Bloomberg think the Fed will maintain its resolutely hawkish stance next week, laying the groundwork for interest rates reaching 5% by March 2023.
A lot of Canadian bank economists thought the same thing about the Bank of Canada and were surprised to see the Bank raise by 50 instead of 75 basis points earlier this week.
Some people think the Fed might even go 100 basis points next week following this morning's ECI report but that doesn't look likely.
Central bankers are caught between a rock and a hard place.
They waited too long to raise rates and now they shifted too abruptly to a hawkish stance.
If they continue raising rates aggressively, they will kill the housing market and economy.
If they pause or pivot, they risk fueling another stock market bubble which may be fine by them even if it raises inflation expectations.
No doubt, at some point the Fed needs to pivot or pause and wait to see the effects of its rate increases, but if core inflation stays stubbornly high and wage inflation picks up, they will have even harder choices to make next year.
What does this mean for stocks in the near term?
Francois Trahan of Trahan Macro Research sees a powerful bear market rally ahead which might last three months, driven by the temporary improvement of LEIs and PMIs.
In his latest research piece, What to Own in Q4 Amid a Bear Market Rally (Cyclicals!), he recommends owning cyclicals with high beta (like financials):
On Linkedin, Francois posted this comment:
I believe this is what we call "Green Shoots". There is a growing list of market-based series that have turned up in recent weeks that are proxies of "risk on" markets. Emerging Market CDS Spreads is one of those and its improvement of late suggests that the Global PMIs are about to move higher for a tad. This is also consistent with the U.S. Dollar which peaked a month ago and is now losing steam. Then there are the cyclical sectors which are leading the S&P 500 higher, small caps, copper/gold, and even bitcoin makes the list and it goes on.
Our work argues this return of the "risk on" trade likely continues for another 3 months or so ... classic bear market rally a la Spring of 2008. Doom and Gloom trade resumes after that. We shall see I suppose.
I was looking at small caps rally this week but I'm still not convinced this rally has a lot to go:
I need to see higher highs and a sustained break above its 50-week exponential moving average, which is definitely possible but if it stops there and turns back down, it will head lower.
A lot of charts look very similar to this one, it's not easy to discern the direction by looking at weekly charts because they aren't screaming buys.
In fact, they're screaming shorts!
But if you were paying attention to individual stocks this week, you'll see animal spirits are alive and well on Wall Street.
From Snap snapping back, to buying the big dip on Alibaba, to Bed, Bath and Beyond and Gamestop, animal spirits are definitely alive and well on Wall Street.
I reckon the traders at Citadel, Millennium, Point 72 and other elite hedge funds were very busy trading this week.
And they'll be equally busy trading next week.
Welcome to the Meta market.
I think Jay Powell needs to get those goggles Zuckerberg is sporting to transport him to a world where everything is just peachy and he doesn't need to make tough decisions.
By the way, all those people reacting on Twitter to Zuckerberg's $100 billion net worth loss, I have one thing to say: the guy owns Instagram, the most popular social media platform in the world!! (don't ask me why, it's utter nonsense as far as I'm concerned).
Don't worry about Zuck, he'll survive and thrive when he learns to stop spending money like a drunk college dorm kid and gets back to acquiring the next Instagram.
As for Elon Musk and Twitter, the best thing he can do is take it private, improve it and then take it public again. He's ready to throw everything including the kitchen sink to make Twitter great again (good luck):
Ah, the trials and tribulations of the world's wealthiest people, must be fun to have so much money and time to waste.
Alright, let me wrap it up and wish everyone a great weekend.
Please note some of the charts above are not updated to incorporate today's closing prices, but you get the picture.
Also note mutual funds are closing their year this week, tax-loss selling will soon kick in but buybacks are going to start up again.
Below, Yahoo Finance’s Jared Blikre breaks down how markets opened on Friday.
Next, CNBC's Halftime Report Investment Committee discuss the biggest market stories from the week, including what's behind the latest move in the Dow.
Third, Adam Crisafulli, Vital Knowledge founder, joins 'Closing Bell' to discuss diverging S&P indexes, global drivers of market activity and predictions about Fed policy downshifting.
Lastly, Jeff deGraaf, Renaissance Macro Research chairman, joins 'Closing Bell' to discuss investors falling for the year end ‘FOMO’ rally.