Asset Classes

Free investment financial education


Multilingual content from IBKR

Close Navigation
Learn more about IBKR accounts

Greatness in October Spilling Over to November

Posted November 1, 2022 at 10:10 am
Patrick J. O’Hare

October was a great month for the stock market (which needed a great month). That greatness is spilling over to November, evidenced by an equity futures market that has a positive disposition.

Currently, the S&P 500 futures are up 41 points and are trading 1.1% above fair value, the Nasdaq 100 futures are up 153 points and are trading 1.4% above fair value, and the Dow Jones Industrial Average futures are up 221 points and are trading 0.7% above fair value.

Several catalysts are working in the stock market’s favor at the moment:

  • There are unconfirmed reports that China is going to set up a “reopening committee” for its economy, which would entail an exit from its zero-COVID policy.
  • Today is the first trading day of a new month, which typically invites new inflows. The invitation looks more attractive at this point knowing how things went in October and that this is historically a seasonally strong period for stocks.
  • Longer-dated Treasury yields have dropped noticeably. The 10-yr note yield is down 15 basis points to 3.93%.
  • Johnson & Johnson (JNJ) created some M&A buzz with a $16.6 billion, or $380.00 per share, cash acquisition of Abiomed (ABMD) that translates to a 47% premium over yesterday’s closing price for ABMD shareholders.
  • Uber (UBER) is aiding the cause for growth stocks, trading up 13% after pleasing investors with its Q4 adjusted EBITDA guidance

There is an intangible factor in the trading mix, too. That would be the fear of missing out on further gains.

To be sure, the recent trend has been a friend for bullish-minded participants. The S&P 500 has climbed back above its 50-day moving average, rallying 10.9% off its October 13 low. Still, it has some work to do to break a pattern of lower highs and to alter a downward-sloping 200-day moving average (currently 4,105).

It will have to do so against a deteriorating economic backdrop that will continue to leave fourth quarter, and 2023, earnings prospects in doubt. Nonetheless, an element of the relief rally seen since mid-October is that third quarter earnings results and guidance have been generally better than feared.

That condition has been owed in part to a consumer that remains relatively strong. Uber CEO, Dara Khosrowshahi, told CNBC as much following the company’s earnings report, yet he also conceded that Uber is being cautious about 2023.

The stock market, however, is in a mode of operating in the here and now, and what it is hearing in the here and now is that earnings are still holding up better than feared and that the Fed may soon embrace a less aggressive rate-hike approach. That has made it feel better about the outlook or perhaps resigned to think that things won’t be as bad as the market’s behavior for most of this year has suggested it will be.

Accordingly, there has been a marked improvement in many stock prices that has been aided by short-covering activity and more earnest bargain-hunting activity, particularly in cyclical sectors.

The energy sector has led all sectors this quarter, soaring 24.8%. It is poised to continue to do well to start the month as the thought of China “reopening” has given a nice boost to oil prices ($88.44, +1.89, +2.2%), not to mention copper prices ($3.49, +0.12, +3.4%).

The energy sector has also been the engine behind the modest earnings growth for the S&P 500 in the third quarter. Companies are delivering some big profits. On a related note, President Biden said he is going to work with Congress to look at available options for possibly imposing a windfall profit tax on energy companies. The sector hasn’t reacted more negatively to the news because the market doesn’t believe such a proposal will pass Congress.

The energy sector is the only sector up this year (+63.2%), but with the move in October, nearly every sector has pared its losses for the year. It has been a welcome move and it could have more room to run if the Fed doesn’t spoil the hopeful party when it makes its latest policy decision known tomorrow at 2:00 p.m. ET.

Originally Posted November 1, 2022 – Greatness in October spilling over to November

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.

IBKR Campus Newsletters

This website uses cookies to collect usage information in order to offer a better browsing experience. By browsing this site or by clicking on the "ACCEPT COOKIES" button you accept our Cookie Policy.