There was a lot of nervous energy in the stock market on Monday and for good reason. Following a weekend assault, Israel declared war on Hamas, engendering concerns that this two-party war could evolve into a wider regional conflict. Thus far, that hasn’t happened.
The fact that things are still contained so to speak is a reason why oil prices ($86.26, -0.11, -0.1%) aren’t going ballistic, and it is a reason why the stock market isn’t coming unglued.
Yesterday, stocks staged an encouraging reversal, overcoming early losses to finish near their highs for the day in what looked like a positioning squeeze that drove some nervous short-covering activity. The gains were broad based, but they also came on light volume.
Given the gravity of the attack on Israel and the contemplation of worst-case scenarios in the immediate aftermath, one shouldn’t have been surprised by the light volume totals. Also, the Columbus Day holiday left the Treasury market closed and took some participants off the trading desk.
The latter point notwithstanding, Treasury futures were trading and they were reflecting safe-haven bids that have given way to lower Treasury yields today. Currently, the 2-yr note yield is down nine basis points to 4.97% and the 10-yr note yield is down 10 basis points to 4.68%.
This drop in market rates has been supportive of the equity market, but it hasn’t necessarily been a huge buying catalyst. That might be because market participants aren’t convinced yet that market rates will remain on their current trajectory.
The S&P 500 futures are up five points and are trading 0.1% above fair value, the Nasdaq 100 futures are up 16 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 69 points and are trading 0.2% above fair value.
Those indications reflect a bit of a wait-and-see attitude rooted along the lines of waiting to see what happens in the Israel-Hamas War, what happens with the September Consumer Price Index on Thursday, what happens with interest rates, and what happens over the course of the third quarter earnings reporting period.
PepsiCo (PEP) got things started on the right note, topping Q3 earnings estimates by a comfortable margin and raising its FY23 EPS above consensus. The company’s CFO also told CNBC that he has seen zero impact on Pepsi’s business from the Ozempic weight loss drug.
This is all good news for PepsiCo, but it hasn’t had any meaningful impact on the broader market, which is moving with some nervous energy that it doesn’t fully know what to do with yet.
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Originally Posted October 10, 2023 – Filled with nervous energy
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