U.S. stocks closed higher on Friday, 9th September 2022, snapping a 3-week losing streak.
Investors took the opportunity to start buying from Wednesday, when the market failed to go lower and looked oversold. Sellers got squeezed out of their positions and backed away.
There was almost a sense of FOMO (fear of missing out) that pushed the stocks higher over the next 3 days.
It looked like it started from the bond markets when yields started to reverse from the highs.
The dollar also gave back some of its recent gains and the stock market took its cue from there.
This was all happening while the BOE and ECB raised rates by 75 basis points. The swap market is now pricing a 75 basis point hike from the Fed.
The Dow finished the holiday-shortened week up 2.8%, while the S&P 500 Index rose 3.6% and the Nasdaq shot up 4.2%.
The 10-year U.S. Treasury added 12 basis points during the week to end with a yield of 3.31%.
Here are the closing levels on Friday, 9th September 2022:
It looks like the bulls just don’t get the picture. They are literally fighting the Fed.
The belief is that higher interest rates will not stop the economy from growing stronger.
Recession is far from their minds.
While they may be right at some point, it may be too early to claim victory.
With so many headwinds, a Fed that wants to drain liquidity, and central banks like BOE and ECB making jumbo rate hikes, they could be setting themselves up for disaster.
The Fed is not going to be happy with the market response as this is working against their objective of cooling down the economy to bring inflation down.
If the markets don’t go down, the Fed may force them to go down.
Like I said before, the only way for the Fed to back away is for inflation to come down to the 2% target of the Fed.
I don’t think we are close to there yet.
While the technical picture is looking positive for stocks, and it is possible for it to go higher, it would be risky to go all in at this point.
Source: CBOE, Bloomberg
This commentary is written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years.
Trading in financial instruments involves high risks due to the fluctuation in the value and prices of the underlying financial instruments. Due to the adverse and unpredictable market movements, large losses exceeding the investor’s initial investment could incur within a short period of time. The past performance of a financial instrument is not an indication of its future performance. Investments in certain services should be made on margin or leverage, where relatively small movements in trading prices may have a disproportionately large impact on the client’s investment and the client should therefore be prepared to suffer significant losses when using such trading facilities.
Please make sure you read and fully understand the trading risks of the respective financial instrument before engaging in any transaction with Doo Prime’s trading platforms. You should seek independent professional advice if you do not understand any of the risks disclosed by us herein or any risk associated with the trade and investment of financial instruments. Please refer to Doo Prime’s Client Agreement and Risk Disclosure Statement to find out more.
This information is addressed to the general public solely for information purposes and should not be taken as investment advice, recommendation, offer, or solicitation to buy or sell any financial instrument. The information displayed herein has been prepared without any reference or consideration to any particular recipient’s investment objectives or financial situation. Any references to the past performance of a financial instrument, index, or a packaged investment product shall not be taken as a reliable indicator of its future performance. Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners, and their respective employees, as well as managers, make no representation or warranties to the information displayed and Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners and their respective employees, as well as managers, shall not be liable for any direct, indirect, special or consequential loss or damages incurred a result of any inaccuracies or incompleteness of the information provided. Doo Prime and its holding company, affiliates, subsidiaries, associated companies, partners, and their respective employees, as well as managers, shall not be liable for any direct, indirect, special, or consequential loss or damages incurred as a result of any direct or indirect trading risks, profit, or loss arising from any individual’s or client’s investment.