Stocks Rip, Commodities Pause, Here is Why

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Stocks are ripping higher and retesting a crucial level. What’s holding back commodities? We got you covered in today’s Midday Market Minute. 

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  • Core PCE, the Federal Reserve’s preferred inflation indicator, is due at 7:30 am CT. It is accompanied by Personal Spending, Income, and Consumption data, and comes ahead of next Wednesday’s policy decision.
  • Q3 Employment Cost Index is also due at 7:30 am CT, followed by final October Michigan Consumer data and Pending Home Sales at 9:00 am CT.
  • Apple bucks the big tech trend and is set to open marginally higher after beating top and bottom estimates. The stock initially traded lower given the environment Amazon laid and missing on iPhone sales and services revenue.
  • Amazon is down sharply, losing as much as 20% before paring back to -12% ahead of the bell. The company missed on revenues and lowered its forecast for the highly anticipated holiday Q4. Cloud growth also disappoints.
  • Big Oil, Chevron, and Exxon, crushed earnings expectations this morning and are both higher by nearly 2%, helping to soothe sentiment.

Breaking:Core PCE was light at 5.1% YoY v 5.2% expected and in line MoM at +0.5%. Personal Income +0.4% v +0.3% and Personal Spending +0.6% v +0.4%, both topped expectations.

The risk landscape remains fickle, but the Treasury complex responded to equity market weakness upon yesterday’s earnings miss from Amazon. Although Bonds have completely pared the panic surge and then some, it is a bright spot to see the convexity of a risk-off move. In fact, the odds for a 75bps hike from the Federal Reserve next week have eroded to 81%, and the odds for December have flipped to a 50bps hike with better than a 50% probability. We do believe 75bps next week is a foregone conclusion, but the responsiveness to fears of evolving deterioration is an important step to normalizing the historical relationship between stocks and bonds. There is chatter the Fed will use next week to lay the groundwork for slowing the pace of hikes and allowing their work to sink in. The struggles from big tech this earnings season likely helped build a case for slowing the pace of hikes. Additionally, these companies lowered the bar for future quarters. What if this was the worst environment they face? If you take a company like Netflix, one of the first dominoes to fall, they had a surprisingly good quarter. Other pandemic darlings like Shopify did too. Next week, we look to PayPal, a former darling but one that has played within a theme of leaders to the downside, now exhibiting significant relative strength in recent months. Not to mention, buybacks and a seasonally bullish time are right around the corner. Without dragging this morning’s note on, what I am getting at is this is a recipe for being in the later innings of a bear market, or at a minimum, the stage is being set for a meaningful rally.

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Futures trading involves substantial risk of loss and may not be suitable for all investors. Trading advice is based on information taken from trade and statistical services and other sources Blue Line Futures, LLC believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. All trading decisions will be made by the account holder. Past performance is not necessarily indicative of future results

On the date of publication, Bill Baruch did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes.

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