Some Relief in a Liquidity Put

Articles From:


Chief Market Analyst

The press reports ahead of the weekend were littered with accounts that Israel had warned 1.1 million residents in the northern Gaza Strip to evacuate within 24 hours. That warning was seen as a pretense to large ground invasion by Israeli troops into Gaza. Naturally, this understanding created a good bit of angst that led to falling Treasury yields, a firmer dollar, rising oil prices, and weak stock prices. 

The worry was that the Israel-Hamas War would escalate and potentially turn into a wider conflict over the weekend when the stock market was closed for trading. That did not happen, so there is a measure of relief this morning that can be seen in rising Treasury yields, a weaker dollar, only a modest bump in oil prices, and gains in the equity futures market.

Currently, the 10-yr note yield is up six basis points to 4.69%, the U.S. Dollar Index is down 0.3% to 106.34, and WTI crude futures are up 0.4% to $88.02/bbl. The S&P 500 futures are up 23 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 55 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 208 points and are trading 0.6% above fair value.

Notwithstanding the improved tone this morning, it is relative to Friday, which is to say the worry about a widening in the Israel-Hamas War is still very much on the market’s mind. The difference at the moment is that equity market participants know they have the capacity to act on new developments in real-time for the next five days.

In part, then, there is a bit of a “liquidity put” helping things here, but that doesn’t mean things couldn’t turn negative quickly, and in a more demonstrable manner, if there were reports detailing the involvement of other parties (primarily Iran) in the Israel-Hamas War.

With the absence of such reports thus far, the market is pre-occupying itself with constructive thoughts about the People’s Bank of China making its largest liquidity injection since 2020 and the hope that the third quarter earnings reporting period will continue to be better than expected. 

There are more than 50 S&P 500 companies reporting their results this week, including Bank of America (BAC), Goldman Sachs (GS), Johnson & Johnson (JNJ), United Airlines (UAL), Procter & Gamble (PG), Tesla (TSLA), Netflix (NFLX), AT&T (T), Freeport-McMoRan (FCX), CSX Corp. (CSX), American Express (AXP), and SLB (SLB), so there will be a lot of opportunity to divine if that is the case.

In some related earnings news, Pfizer (PFE) lowered its FY23 outlook due to weaker sales of COVID products, but it is up 0.9% in pre-market trading, getting some offsetting support from a Jefferies upgrade to Buy from Hold.

There will soon be some new members of the S&P 500. Prior to the open on Wednesday, October 18, lululemon athletica (LULU) and Hubbell (HUBB) will be added to the S&P 500, replacing Activision Blizzard (ATVI) and Organon (OGN). That news explains why both stocks are trading higher this morning.

There is some other news, though, that helps to explain why some other S&P 500 stocks are trading lower. Apple (AAPL) is down 0.5% following a Bloomberg report that iPhone 15 sales have gotten off to a disappointing start in China, and Tesla (TSLA) is down 0.7% following a Wall Street Journal report that electric vehicle industry sales are not going as well as expected.

Originally Posted October 16, 2023 – Some relief in a liquidity put

Leave a Reply

Your email address will not be published. Required fields are marked *

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from and is being posted with its permission. The views expressed in this material are solely those of the author and/or and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.