Staying on rebound path

There is a whirl of information confronting market participants this morning, ranging from geopolitical news to corporate news to economic data. It hasn’t all been necessarily taken in stride, but the equity futures market suggests the stock market will continue walking a rebound path at today’s open.

Currently, the S&P 500 futures are up 17 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 65 points and are trading 0.5% above fair value, and the Dow Jones Industrial Average futures are up 137 points and are trading 0.4% above fair value.

The geopolitical and economic news, arguably, isn’t great.

Israel is stepping up its retaliation in Gaza and reports have suggested that Hezbollah has made provocative actions in the north; however, what stands out mostly to the market at this juncture is that Israel and Iran are not in an armed conflict. That would be a worst-case scenario, so it remains a relief to know that this worst-case scenario remains dormant.

On the economic front, the Producer Price Index for September was up 0.5% month-over-month (Briefing.com consensus 0.3%) following a 0.7% increase in August. The Producer Price Index, excluding food and energy, rose 0.3% month-over-month (Briefing.com consensus 0.2%) following a 0.2% increase in August. On a year-over-year basis, PPI was up 2.2%, versus 1.6% in August, and core PPI was up 2.7%, versus 2.2% in August.

The key takeaway from the report is that it marked an interruption in the disinflation seen in producer prices, which will keep market participants worried about pass-through effects to the consumer and rates staying higher for longer because inflation is staying higher for longer than the Fed would like.

This report triggered some selling interest in the Treasury market, but thus far the selling efforts have been contained. The 2-yr note yield, at 4.95% in front of the release, has risen to 4.99%. The 10-yr note yield for its part is at 4.58%, down a basis point from where it was just before the PPI release and down another eight basis points from yesterday, which has been a support factor for stocks this morning.

We will get some insight on the Fed’s inflation views when the minutes from the September 19-20 FOMC meeting are released at 2:00 p.m. ET. Overall, the market may have to put its own spin on those views, and other views expressed in the minutes, given the sharp jump in Treasury yields and the increased (geo)political uncertainty since that meeting was held.

Part of that uncertainty revolves around the ouster of Kevin McCarthy as Speaker of the House and a standstill in House business since that decision was made. According to Politico, Republicans will hold an internal vote for House Speaker today, but will need 217 votes before going to the floor with an official vote.

In corporate news:

• Exxon (XOM) is acquiring Pioneer Natural Resources (PXD) in a $59 billion, or $253 per share, all-stock transaction
• Walgreens Boots Alliance (WBA) and Sherwin-Williams (SHW) have both announced new CEOs
• Birkenstock Holding (BIRK) will be going public today
• Samsung reported better-than-feared Q3 operating results
• Kidney dialysis services companies DaVita (DVA), Baxter (BAX), and Fresenius Medical (FMS) are seeing sizable losses on the heels of news that Novo Nordisk (NVO) stopped a kidney outcomes trial of its once-weekly injectable because an independent monitoring committee said the results met certain pre-specified criteria for stopping the trial early for efficacy.

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Originally Posted October 11, 2023 – Staying on rebound path