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Stock Market Still Running Hot

Posted November 1, 2021 at 9:30 am
Patrick J. O’Hare

The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite had record closing highs on Friday and they are expected to keep trending higher when today’s opening bell rings.

Currently, the S&P 500 futures are up 12 points and are trading 0.4% above fair value, the Nasdaq 100 futures are up 29 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are up 128 points and are trading 0.7% above fair value.

There are several catalysts for the bullish bias:

  • This is the first trading day of a new month and that typically invites new inflows, particularly in the context of an upward-trending market.
  • There is underlying momentum that is pushing things along with an attitude that the trend is your friend (until it isn’t).
  • The resilience to selling pressure is prompting a fear of missing out on further gains.
  • House Progressives are reportedly going to support both the bipartisan and reconciliation infrastructure bills.
  • The EU and US have relaxed tariffs on steel and aluminum imports; and Treasury Secretary Yellen has hinted at the possibility of relaxing some Chinese tariffs in a reciprocal way that will help ease inflation.

Separately, this is going to be another big week of earnings reporting, yet there is likely a sense of relief that the stock market managed its way favorably through last week’s earnings results, which featured reports from the biggest companies; moreover, it struck a bullish chord that the market could run to record highs on Friday even though Apple (AAPL) and (AMZN) both declined after their reports.

This will also be a big week for economic reporting and central bank meetings.

Today’s economic calendar features the October ISM Manufacturing Index ( consensus 60.5%; prior 61.1%) at 10:00 a.m. ET, and the week will be rounded out with the October Employment Situation Report on Friday.

Tucked in between will be the FOMC meeting on Wednesday, which in turn will be followed on Thursday by policy announcements from the Bank of England and Reserve Bank of Australia. The FOMC won’t be raising rates, but its meeting is expected by many to culminate with an announcement of a plan to taper the Fed’s asset purchases.

By and large, all three central bank meetings are expected to be accented with a tilt away from the ultra-easy monetary policy that has been in place since the start of the global pandemic in 2020. That tilt may not come in the form of actual interest rate hikes, but it is expected at least to be heard in the tone of policy communications.

There will also be ample interest today in the line of communications from the UN Climate Change Conference (COP26) being held in Scotland, where world leaders, including President Biden, are meeting to discuss ways “to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change.”

That might be one reason why a stock like Tesla (TSLA) is up 1.7% in pre-market trading, but then again, Tesla might be up just because of underlying momentum. In any case, it wouldn’t be a surprise to see alternative energy stocks, electric vehicle makers, and “green” stocks catch some momentum of their own in connection with the climate change conversation.

Overall, it still seems to be a temperate, if not hot, climate for stocks in what is often a seasonally warm period.

Originally Posted on November 1, 2021 – Stock Market Still Running Hot

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