Halloween Special: Possible Scares for Markets and the Economy

Last Edited by: LPL Research

Last Updated: October 31, 2023

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Breaks below the 200-day moving average are not as bad as the headlines suggest, as a lot of the negativity has already been priced into the market by this point.

- Adam Turnquist, CMT, Chief Technical Strategist

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Jeff Buchbinder (00:00):

<Silence> Hello everyone and welcome to the latest LPL Market Signals. Jeff Buchbinder here, your host for this week with my friend and colleague, Adam Turnquist. Adam, how are you today? Happy, almost Halloween.

Adam Turnquist (00:13):

Yeah, happy early Halloween and a happy Vikings victory yesterday, which was exciting. I was actually at the game. Little buzzkill, though, of course with Cousins going down in that ACL so a bittersweet victory, I guess. But hopefully we can continue the momentum.

Jeff Buchbinder (00:32):

Well, as a Chiefs fan, all I got to say is come back to the games, Taylor, because we can only win when you're there.

Adam Turnquist (00:40):

Yeah, it's a tough loss too, on your end.

Jeff Buchbinder (00:42):

So we got a <laugh>. We got a busy half hour for you today. Just so much going on. It's Monday, October 30, 2023, as we're recording this, and here is our agenda. So, S&P 500 entered correction territory on Friday, although it is rebounding today and out of correction territory, it's still, it's below the 200-day moving average. So we'll get Adam's technical take on that. And you can see here Adam has a agenda item, technical takes. We're going to have a little bit of a Halloween theme today because we have a Halloween edition of what scares us, which is this topic of this week's Weekly Market Commentary. And then we'll do some Halloween themed technical analysis trends for you. I'm going to also update earnings season. It's not getting much attention, and we all know why it's because everybody's focused on the Middle East and rightly so.

Jeff Buchbinder (01:43):

But the earnings season has been pretty good so far, despite some high-profile disappointments, or at least disappointing market reactions I should say. And then last, we'll preview a busy week. You have the Fed meeting, you have the BOJ meeting. You have jobs report, 160 S&P 500 companies reporting earnings. There's a lot going on. So let's first talk market recap. And we'll get to the chart of the S&P here in a second. So you see here the S&P was down 2.5%. It was clearly a risk off week because you had the Nasdaq and the Russell 2000 down a little bit more. That's a pretty big drop. I mentioned the correction territory. Nasdaq's in correction territory too. And the only sector that worked was utilities. The utility sector last week was up 1.2%.

Jeff Buchbinder (02:41):

So you had a combination of, you know, defensives working in a down tape, but you also actually had rates generally, you know, cooperate a little bit more than maybe they had been. So maybe in the utility sector, the market is saying a peak in rates could be close. We'll have to see. Consumer discretionary held up pretty well. Amazon's numbers certainly helped, that stock reacted very positively to earnings. So there were some relative bright spots, I guess. And then on the downside you know, oil was down, so energy was down. You also had some disappointing earnings from the majors, weighing on that sector. Chevron and Exxon. So anything else here Adam that you would call out from last week's performance?

Adam Turnquist (03:32):

Yeah, I would just note that volume last week, it was above average, which we haven't really seen that so far this year on a big up or down week. So down two and a half percent, as you noted, in volume throughout the week was above average and is also widespread when you look at the number of declining shares versus advancers that came in at four to one. So it wasn't just these mega caps dragging down the market. It was pretty broad-based selling last week.

Jeff Buchbinder (04:01):

Yeah, some of these breadth readings that you've been talking about, Adam, don't look so, so great. But we're oversold, we're getting a bounce. We'll see how far it goes. So turning to fixed income and commodities. You know, I mentioned that, you know, yields cooperated last week. That certainly helped utilities. The Bloomberg Aggregate Bond Index up about 70 basis points as yields came down. You know, the Middle East is probably part of that, little bit of a geopolitical safe haven bid for Treasuries. But yields are back up again today. Maybe a little bit nervous about the Fed, maybe a little bit nervous about the Treasury refunding announcement this week. Right? We're going to see how much in treasuries the government's going to issue. That is a very big deal in this environment. We'll touch on that a little bit in a minute.

Jeff Buchbinder (04:52):

So you know, good week for bonds last week, but this week, not off to a great start. We still think yields are going to go down a little bit, but maybe not in the very short term as we work through some of these supply demand dynamics in the Treasury market. So, we're also going to do a little bit of a gold discussion here in a bit. But Adam, anything on the actually, and oil, anything on the commodity side last week that caught your eye?

Adam Turnquist (05:22):

I thought it was interesting to see Treasuries finally capturing that safe haven bid, which is typical when you see volatility increase. Of course, gold has captured most of those flows, but we did see a report out of Bank of America that actually showed very sizable inflows into Treasury funds last week, especially on the longer duration side. It was actually record inflows going into longer duration. So it does suggest some of that panic is spilling over into a rotation into actual Treasuries this time.

Jeff Buchbinder (05:54):

Yeah, and believe it or not Bitcoin has received a safe haven bid as well. Certainly we don't have a recommendation or any take <laugh> really on that, but seeing gold, Bitcoin rally together clearly highlights the demand for safer haven assets in the marketplace. So thanks for that, Adam. Let's talk S&P. What does this chart tell you? Broke the 200-day and at least as of Friday, we were in correction territory.

Adam Turnquist (06:24):

Yeah, the big question right now, is this a correction or something more? And I think technically you can still make the case, this is just a correction. You can see on this chart with the S&P 500 in the top panel, we've had consecutive lower highs and lower lows, finally breaking below that closely watched 200-day moving average last week. And technically that's not a great setup. But when you look back historically, and we included this data in our Weekly Market Commentary as well, it's not as bad as it sounds. There's been 219 times the S&Ps actually crossed below the 200-day moving average. In forward returns after that, for example, 12 months later, you're up on average 7% and about two-thirds of the time you're higher. So a lot of the technical damage is already done. If you think about what the 200-day moving average really is, it's just obviously a simple moving average of the price over the last 200 days.

Adam Turnquist (07:17):

And when you start getting below that level, a lot of that, I think, fear and that damage is already priced in. So maybe that's a good sign. I guess maybe a positive sign at least as we have a lower bar going into earnings. Just where, some of that discounting has been. When we're looking at market levels here for this week, you want to keep an eye on 4,050. That's going to be a key support level for the S&P 500 to hold. That goes back to the April and May lows. And there's also a key Fibonacci retracement level that coincides right around that level. So I think a potential logical spot for a bounce, if we do get any further downside. We are getting pretty oversold. You can see in the middle panel here with the relative strength index, near oversold levels.

Adam Turnquist (08:03):

What really stands out here though, is that we're actually seeing a momentum divergence, meaning RSI is making higher lows as price is making a lower lows. We call that a positive divergence, a good sign overall when you're looking for a potential bottom. And then on the bottom panel, just how widespread oversold conditions are becoming. You can see about 25% of the S&P now oversold based on RSI. So I think you can, you know, make the case here. We're getting close to a potential inflection point just based on the degree of oversold levels. Be great if the market this week can get above 4,200 or even the 200-day moving average right around 4,241. So those are the levels I'm watching on the upside.

Jeff Buchbinder (08:47):

Great. I'll also point out that the, you know, the average correction once it gets down 10 is about down 15. So if you think we do that, it's clear that the upside is bigger than the downside, right? You've got positive risk reward trade off there, and those pullbacks tend to, or corrections tend to last, you know, two to three months. So you know, we could be kind of bumping around still not maybe establishing a firm uptrend when December rolls around, we'll have to see. But you would anticipate nobody has a crystal ball, but you'd anticipate the market, you know, being higher and getting through this correction, you know, at least by January, maybe at the latest based on the historical averages. So we're still constructive here at LPL Research and you know, maintain our neutral equity stance, but are looking for opportunities to potentially buy the dip.

Jeff Buchbinder (09:46):

So let's now get into our Halloween theme. Got a little bit of this woven in here. So the Weekly Market Commentary this week is about what scares us. And you know, one of the you know, one of the things on this list is the technical breakdown. So we, you know, we really covered that. Breaks below the 200-day moving average. And corrections aren't really as scary as you might think when you look at the numbers. But what is scary is the geopolitical landscape. The market today at least is saying that this is going to be contained to just you know, Israel and Hamas, but there's already been a little bit of you know, let's say rockets fired back and forth between Hezbollah and Israel and in in Syria as well. Tough talk from the U.S., certainly tough talk from Iran.

Jeff Buchbinder (10:45):

So the risk still there as we're all aware that this thing could widen out. But at this point, our base case is that it remains contained, you know, tragic, devastating, scary, whatever words you want to use, but still contained. You're seeing that with oil down today. As long as this war continues and it's going to be a while, you're probably going to see stocks sell off on Friday, because people don't know what's going to happen over the weekend and they don't want to take risk into Monday. So I think that's what we saw. You're probably in a period where Mondays do pretty well. Next on this list is dysfunction in D.C. We've got to contain the spending. You all know this. And if you don't have a functioning government, then you certainly can't do that. It's going to take a while, you know, years probably, to really take meaningful action to control the deficit and the debt.

Jeff Buchbinder (11:40):

But as interest rates rise, that becomes more expensive. So that is certainly on our list of what scares us. The rise in rates. We'll show you the 10-year here in a minute, and I'll get Adam's take on that. I guess the last piece of news that maybe caused us to think we can't declare victory on rates yet is the PCE ticked up a little bit on Friday. The Fed's preferred inflation metric, core Personal Consumption Expenditures Index. So the inflation battle's not over. Rents are still sticky. And then you've got this Treasury supply demand imbalance I mentioned. So rates could, you know, move back above five, stay there for a little bit, but we still think 4.75 should be the cap or the ceiling, as we move through this you know, this period of upward pressure on rates. Next tighter financial conditions.

Jeff Buchbinder (12:39):

Actually, I'll show you a slide on that. And housing is just not affordable. So this is from Jeffrey Roach, our chief economist. If you, you know, we know the fed funds rate is, you know, a little over five, that's what the Fed is going to maintain on Wednesday, no rate hike expected. But if you take the San Francisco Fed, I guess creates a proxy index that factors in quantitative tightening, right, selling bonds. There's some other factors in this, but it comes up with like an effective well, that's probably not the best choice of words, but sort of an implied proxy federal funds rate that takes into account other things besides just the actual fed funds rate. And you see here, it's over six. So the Fed's getting really tight and or they're already tight and they're probably not going to hike again because the economy is clearly going to slow in Q4 and into 2024.

Jeff Buchbinder (13:40):

Last on this housing affordability. This is the most expensive housing since, well, I was a teenager and Adam, you were probably still in your crib. So it's been a while <laugh>, right, since housing was this unaffordable. We know this with 8% mortgage rates now. And home prices haven't really come down because, I mean, there's cash buyers, there's low inventory, right? It's just not, there's just not enough turnover to drive home prices down in most markets. So you have this housing bubble of sorts with you know, people just frozen. In fact, Jeff calls it golden handcuffs, right? If you're locked into a 30-year mortgage in the threes, you're not moving. So, unaffordable housing is a challenge. And you know, the wealth effect in housing is real, right? You feel wealthier if your home price is going up. And the opposite's true. It's the same thing with the stock market. So that's something to watch for a potential pressure on consumers. That's why we got to watch rents. If it's too expensive to buy your rent, rents go up, that's a hit to consumer spending, especially at the lower end. So anything on those fears, Adam, that you want to add onto there?

Adam Turnquist (15:03):

I don't know if I want to pile on the fears. I would say with Jeffrey Roach's comments on the housing market, some of those rents the more I guess forward-looking data that we can view in terms of whether it's Zillow, rents are starting to come down. So we do think that will start to reflect in the inflation data. Of course, shelter's a big part of that, so at least maybe a more positive spin on it as some of those rent prices come down, but clearly a problem. One other thing, at least on the technical side here, as it relates to housing, I was just looking at lumber prices and it looks like they're potentially bottoming. So when you think about input costs going into a house, they're near multi-year lows here, kind of forming what it looks like, maybe a triple bottom, we'll call it. So I think if that's the case, then lumber prices start going higher certainly could cause some fear here in terms of affordability and kind of pile onto the theme there. So we'll be watching those charts, at least on the technical side.

Jeff Buchbinder (16:04):

We had a strong rebound in housing starts announced last week, I believe. So there's, you know, we're trying, this economy needs more housing. And if lumber prices can stay down that will certainly help affordability as you get more supply of course you should get lower prices. So we'll keep watching housing closely. Something else we're watching closely is earnings. The earnings season's been better than you think. That's my headline here. But unfortunately, the market hasn't cared because of the Middle East and the focus on the macro. But here's our earnings dashboard that we show you every quarter. The beat rate on earnings is really good, 77%. This earnings growth number, it was, you know, 2.7 when I ran this on Friday, it's actually ticked up and it's now closer to four. So that's a great number.

Jeff Buchbinder (16:59):

It's up like three points just over the last, well, basically two business days. So that's bigger than you typically see in a week. So very good upside relative to expectations. And actually, if you take energy out, you're up about seven and a half. So really strong earnings growth ex energy so that's good. The earnings recession, of course, is over because we're going to have earnings growth for the first time in four quarters. And then guidance, of course is really a good barometer of how strong of an earnings season you're getting. And on that basis, we're doing pretty well. It's not like last quarter where estimates actually rose, and I don't think NVIDIA's going to save us again. We'll see <laugh> The upside from NVIDIA's numbers last quarter were so big that it basically moved the S&P 500 earnings all by themselves meaningfully.

Jeff Buchbinder (17:58):

So you know, hopefully that happens again, <laugh>, but it's not likely. And we're down 0.6% now in forward estimates during reporting season. So that number will probably end negative. But remember it typically drops more than 2% during earnings season. So we're going to call that a win as well. But here's the downside of that, the reaction to earnings reports have been pretty weak. In fact, I have a statistic, a couple statistics on this. So the average stock is down 0.7% on its earnings report. Companies that beat on both the top and bottom line. These, by the way, are stats from Evercore ISI. If you beat on both the bottom line and the top line stocks been up 0.5% on average, but typically the long-term average is up 1%. So you're getting half the upside when you beat on both top and bottom line.

Jeff Buchbinder (18:56):

And then similar stat, but for misses, if you miss on both top and bottom line, on average stocks down six. Historically are down three. So the reactions have been more negative than they historically have been. So you know, bottom line, the market's just not reacting to earnings results. It's really more of a reaction to or let me say it this way, the generally solid results relative to expectations aren't generating the same market reaction that they normally do because the market's just too focused on the macro, really punishing misses and not getting too excited about beats. So this week is another week of you know, heavy dose. We've got 162 S&P 500 companies, and you know, so we're a little over the, well, as of Monday, we're a little over the halfway point. We've got a lot more to go, including Apple. That one will get a lot of attention. Of course, the largest stock in the S&P 500, although Microsoft is really close, kind of knocking on the door there. Any observations from you, Adam on earnings season?

Adam Turnquist (20:08):

I think you nailed it. It's really all about expectations going into the quarter. Here we are talking about above average beat rates coming out of an earnings recession, but yet there's really no reward from the market. Juxtaposed to some of the previous quarters where we're actually posting declines in earnings and moving higher. So I think it was a fairly high bar as you've been highlighting for the last several weeks in terms of earnings coming into the quarter.

Jeff Buchbinder (20:34):

Yeah, the high bar for the big techs certainly was evident because you had some negative reactions to pretty good numbers. You know, I would highlight Meta as an example of that. Just some cautious commentary from management you know, left that stock down sharply even though the numbers were pretty good, you know, Microsoft and Amazon's certainly generated very positive responses in the market, so that was good to see. But then you had, you know, Alphabet and Meta, not so much. So hopefully Apple can, you know, get us to the point where we have more big seven rallies rather than big seven declines. We'll have to see. It does feel like expectations are you know, still pretty low, you know, coming into this week of earnings, including for Apple. So we'll see, we'll see what happens this week.

Jeff Buchbinder (21:22):

We got off to a good start this morning with good numbers from McDonald's. Pretty good pricing. That was one of the keys by the way, coming into earnings season. Were companies going to get enough pricing to, you know, enable margins to hold up, right? Because inflation's coming down, that means less pricing power. And we've seen several examples, McDonald's being the latest of companies that got pretty good pricing and held up. Procter and Gamble is another example of that. So pretty good numbers overall and you know, hopefully we can finish strong in the second half. So at this point, Adam, we're going to do just technicals. We got a bunch of charts in here and studies. So why don't you just take it away and we'll start with the 10-year.

Adam Turnquist (22:05):

Yeah, we'll jump into the technical picture here with the 10-year, and I think this is probably weighing on some of those reactions in the market in terms of earnings with the 10-year bumping up close to 5%. So the narrative really on the technical side has changed a little bit just over the last couple months. I think the market had some degree of complacency with this consolidation phase on the 10-year. You know, going back to last October, we peaked right around 4.34 on the 10-year, and the narrative was more, how low are we going to go? Or I guess for this case, you know, it was more of just this consolidation phase. Well, that narrative started to change as we broke out back in September above those October highs. And now we're talking about how high will rates go. And of course, a lot of eyes are centered on that 5%.

Adam Turnquist (22:52):

There is some resistance around 4.90, but I think that round number of 5% is going to be key. Certainly creating some sticker shock even at the Federal Reserve level, as some of the Fed governors have highlighted how the longer duration part of the curve is doing their heavy lifting in terms of tightening. But on the technical side here, the big picture is the trend is higher here on the 10-year, getting a little bit extended above the 50-day right now that's at 4.50. So what we're looking for is any signs of stabilization or a top here on the 10-year can't really make the case right now. We're getting a little bit of a reprieve in momentum. You can see that middle panel is the MACD indicator slipping into a sell signal just over the last couple sessions. But we're in an uptrend. Sell signals

Adam Turnquist (23:39):

I tend to discount a little bit with that indicator, but I guess we'll call it a good sign overall as some of that upside momentum has slowed a little bit. But I think to really make the technical case on the 10-year peaking, you really need to get below at least the 50-day there at 4.50. But I think to be, you know, a little bit more certain on a trend break, you'd really need to get back below, call it 4.30, 4.35, that would get you back into your prior consolidation range. So some more wood to chop on the downside before you can make the technical call here. So we'll continue to watch kind of that 4.90, 5% level. If you actually measure just this consolidation phase and apply it to the breakout level, that actually gets you a technical based price objective, kind of in the 5.25 to 5.50 camp.

Adam Turnquist (24:27):

I would consider that more of a worst case scenario in terms of the upside, but for now, still looking for that inflection point. If we do get some signs of yields rolling over, it could accelerate some short covering. That bottom panel just looks at the speculative positions in the 10-year treasury. So they're playing for higher yields, if they cover that would potentially accelerate buying into Treasuries and bring yields lower. I know the news, I think last week was Bill Ackman covered his large Treasury short position in the market, so we'll see if others follow, but for now, short interest remains very high in the 10-year right now, so I think a pretty interesting chart to watch this week, especially with the Fed coming out on Wednesday. And then of course payrolls on Friday.

Jeff Buchbinder (25:15):

Yeah, if you told me to watch one thing, this is it, you know, the I mean maybe you have to say oil too because that's going to tell you what's going on in the Middle East, but.

Adam Turnquist (25:27):


Jeff Buchbinder (25:27):

Those are the two macro drivers of this market.

Adam Turnquist (25:30):

Yeah, and oil has backed off its recent highs as well. We had this kind of breakout above $83. That was a level that oil struggled with really over the last year. You can see how many times that $83 level had been tested and failed at. And we finally got that breakout point, we gapped above it, got to overbought conditions with WTI crude here running into overhead resistance. And now we've seen the subsequent pullback off those overbought levels. What's interesting here on the technical side is that prior breakout level around $83 has held, seemed to be some buyer interest right around that level. So I think a good sign for oil markets not necessarily suggesting we're going to go break out above those September highs, but I think it does set up a new phase for oil or a new range at minimum here for oil holding above that $83. So maybe we'll be a little bit range bound as some of those gains are digested in terms of that kind of 83 on the low end and call it 95 on the upper end for WTI.

Jeff Buchbinder (26:32):

Yeah, if you'd asked me where would oil be now based on, you know, what happened on October 7, I would've told you 95 minimum. So this is really a pretty calm oil market, which, and we hope it's right <laugh>, that this conflict remains contained because I mean, it's extremely ugly already but it could certainly get worse. So here's your next chart, Adam. The kind of continuing on the rates discussion.

Adam Turnquist (27:04):

Yeah, this looks at Treasury yields that are in the bright and blue and comparing that to copper and gold on the ratio chart here. And historically, these two are positively correlated. And if you think about each one separately, copper, for example, is an industrial metal, obviously widespread application in terms of its use case, and it's generally considered a leading economic indicator. So as the global economy grows, a lot of the inputs into that growth are going to be tied to copper prices. On the flip side of that, of course, you have gold, not a widespread application use, more of a store of value, and of course a safe haven, which has really been a driver of gold prices recently. So when you put it into a ratio chart, that copper gold ratio chart, it does kind of give you this kind of risk on risk off indicator.

Adam Turnquist (27:53):

So as the ratio chart is moving higher, it's indicative of more of a risk on environment. And when it's moving lower, of course, more of a risk off. So we compare it to Treasury yields again, historically they're correlated or positively correlated, but we've had this notable breakdown in correlation, and I think it's interesting to see when that started to occur. It was right at that July 31 high in the equity market. So that was kind of the differentiator here between this ratio chart as yields started to take off, you can see that arrow from that area, and the ratio chart started to break down. So when we look at this, we're looking for some type of inflection, and for these two to really mean revert to their normal positive correlation, it's pretty low right now, coming actually from negative territory in September.

Adam Turnquist (28:45):

So mean reversion can only really happen in a couple ways here with either yields coming down and following the copper gold ratio chart. That's what history would suggest. Could be the case here, or copper gold moving higher and following yields. Typically, copper gold leads the 10-year. It's been more of a leading indicator for that. So I think it's right at this inflection point. You can see on the bottom here that support level on that copper gold ratio chart. So we'll see if that support level holds up technically, if it does, that would mark an inflection point here, suggesting we'll start to see copper outperform gold and maybe play a little catch up to where 10-year yields are right now.

Jeff Buchbinder (29:25):

And normally the growth that we've seen would just push copper higher. But you have, you know, lackluster growth in China even while the U.S. economy has done well. And then you have gold obviously benefiting from the Middle East conflict. So it's just a very, it's a very interesting dynamic here and one that's pushed this relationship apart and, you know, we'll see how it comes back together. So let's get back to the Halloween theme, Adam, here's a good one. I want to know that my Kit Kats and my Nestle Crunch bars aren't going to get too expensive.

Adam Turnquist (30:01):

I wish I could tell you that. But when we look at the inputs into some of the candy prices, of course, this is a look at sugar prices, certainly a little bit of a concern there for your Kit Kat bars. You could throw cocoa into this mix too, that's breaking out to multi-year highs. But as we look at the copper setup here, we broke out from this, what we call a symmetrical triangle. And now we recently made it to an 11-year high on sugar prices. So of course there's supply and demand dynamics that fuel that recent advance. And one of the big drivers right now is more on the supply side. So Brazil has basically had a major bottleneck in terms of their exports. They're actually the largest producer of sugar, so they're not able to really get sugar out of the country due to some bottlenecks at their ports.

Adam Turnquist (30:49):

And then the other big sugar producer is India. They're actually the second largest, and they actually had an export ban, so they're no longer exporting sugar, there's restrictions on it just because of they need their own internal supply within India. So that's really driving prices right now, and it looks like the path of least resistance here for sugar is higher. We see an upside price objective here just based on the technicals around $33. So we could see some further upside there. And then of course, further outperformance. This bottom panel, this ratio chart looks at sugar versus the broader Bloomberg Commodities Index. And you can see that's what we call a well-defined uptrend. It's been an outperformer across the commodity complex really over the last year, and pretty notable rally there for sugar prices this year, up around 20, 25% depending on what contract you're looking at. So look for some more expensive candy. Maybe by next Halloween we'll have a correction here in sugar, but nothing on our radar in terms of an imminent trend change here for sugar prices.

Jeff Buchbinder (31:54):

Hopefully all of you bought your candy early because it probably was cheaper before. All right, well thanks for that, Adam. Really interesting stuff. Let's keep moving. Here's some good news. Rising candy prices is not good news, but the start of the best six month period of the year for stocks is good news.

Adam Turnquist (32:13):

Yeah, absolutely. We call this, or some people call it the Halloween indicator. It's the reverse of, I guess reverse, maybe not the best word, but you've all heard "sell in May go away". You can see that May through October window there, up 1.6%, and now we're in the best six-month period. You can see average returns for the S&P 500 from 1950 to year to date up 7%. So we are in that historically strong seasonal period. Of course, we're coming into November and December. That's, a lot of those gains are generated during that period. That's the best two month return window for the S&P 500. So a much better seasonal setup here for the market over the next six months. I think that helps at least alleviate some of the concerns that we've seen in the market. Not necessarily tied to Halloween but coming out of a pretty weak obviously a very weak September and an underperforming October so far. So some positive news, I guess we'll call it for the Halloween indicator.

Jeff Buchbinder (33:14):

Yeah, we're going to come into November with three month losing streak. The six months ending October will probably be flattish even after the rally today. I don't think it's going to be, you know, any better than maybe plus 1%. So we have, we haven't like, pulled forward gains from that favorable period. So yeah, this looks like we're really set up well to benefit from this pattern. We'll have to see. So busy week, as I mentioned upfront, Adam, we just have a ton. I mean, it's yields is probably the thing to watch most closely because we have the Fed, we have the job market, you know, the payrolls, which is going to move yields potentially. You have the BOJ, which is potentially going to remove accommodation, you know, get tighter and that can move yields. And then you have the Treasury refunding announcement, which is essentially going to tell us how much the government's going to issue in Treasuries, which of course affects Treasury prices by affecting the supply of Treasuries.

Jeff Buchbinder (34:16):

So this is just a monumental week for yields. So if we can get through this week without yields going above five on the 10-year, I think that will be a major victory. The ISMs probably not a big yield mover, but that is certainly an important report. Jeff Roach tells me that he thinks that the job creation number will be somewhere in the 180-190 range. So we don't, that's pretty much in line with consensus, so we don't expect another surprise. I mean, we didn't expect 336,000 jobs last month, but a surprise this month is also unlikely. So look for kind of a cooler number, but we might get another 0.3% on the average hourly earnings. That's the wage number that the Fed watches so closely, big part of inflation. If you string a bunch of point threes together, you end up with 3.6% annual inflation on wages, that's tolerable, but it's not quite, you know, a Fed declaring victory kind of a number. So you know, hopefully we can mix in some point twos and end up you know, closer to three than four. Anything here strike you, Adam, as worth highlighting, other than what I just mentioned.

Adam Turnquist (35:31):

The Fed meeting, of course will be the, the big one outside of some of those other major economic reports out this week. And I think it's just with expectations really for no change in monetary policy, I think it will obviously all be about the presser following the FOMC decision, and it'll be interesting to see if the Fed cohesively makes any type of comment about the longer duration yields. I think that's started to be a narrative among some Fed officials, would be interesting to see if that makes it into any type of policy statement for the Fed this week.

Jeff Buchbinder (36:07):

Yeah, absolutely. So there's no chance pretty much in the fed funds market of a hike this week, but we do have about a 20% chance of a hike in December. So if that moves, you could see a market reaction. Again, nobody expects the Fed to say they are done, that's just not how they operate. But if there's nothing, if they don't say anything to move the market then that certainly could be positive for stocks and for bonds. So we'll see. You know, just like this other news this week, there are risks, but suffice to say this is a big test and if the market can get through this week okay, and the conflict in the Middle East remains contained, then we think we can bounce right out of this sell off and continue the, you know, maybe not a bunch of days like today, Monday, but certainly we think we can reverse these recent losses and move higher. So looking forward to seeing some of this news come out. So with that we'll go ahead and wrap. Thanks everybody for listening to another LPL Market Signals. Thanks Adam for joining me and offering your thoughts on technicals and everything else. We wish Kirk Cousins well in his recovery. And Taylor, come back to Arrowhead. Everybody, have a wonderful week. We will talk to you next week. Take care.

In the latest LPL Market Signals podcast, the LPL Research strategists recap a down week for stocks amid ongoing fears of a widening in the Middle East conflict. The strategists also discuss what’s next for stocks with the S&P 500 in correction territory, list some possible scares for markets in honor of Halloween, review an earnings season that has been better than you think, and preview a very busy week of economic data, central bank meetings, and earnings reports.

The S&P 500 lost 2.5% last week largely due to geopolitical fears, sending the index into correction territory. The strategists discuss how much investors should worry about the double-digit declines in the S&P 500.

In honor of Halloween the strategists list some possible scares for markets and the economy, including a potential widening of the conflict in the Middle East, profligate U.S. government spending, rising rates, tightening financial conditions, and the worst affordability in housing in decades.

Quarterly earnings results and guidance have generally exceeded LPL Research’s expectations thus far, though the market reactions have been lackluster. Still, results have been good enough to help support stocks once macroeconomic and geopolitical fears ease.

The strategists discuss some technical analysis trends investors should be watching as the best six-month period for stocks historically begins on November 1. One of the most bullish trends is Halloween related!

Finally, the strategists preview a very busy week ahead with the Federal Reserve and Bank of Japan meetings, the October jobs report, Treasury refunding announcements, and more than 150 S&P 500 companies reporting Q3 results.

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