Month: October 2023

The sentiment in markets is one of fear and uncertainty.

On the one hand is the worry that the Israel-Hamas war will metastasize into a wider conflict. On the other is the stated commitment by the FOMC to continue with a high interest rate regime despite the relentless rise in long-term yields, and the impact of this on the economy.

Given the relatively conservative positioning by investors, a short-term rally cannot be ruled out once the market starts to adjust to the reality of the war. Since risks remain elevated, we feel the best way to play this would be using options.

Market sentiment has become extremely bearish.

The S&P 500 has broken through support at 200 DMA, CNN’s Fear and Greed Index is in “Extreme Fear” territory and strong earnings report by most of the “Magnificent Seven” stocks have been glossed over.

Uncertainty around the direction of the conflict in Israel will likely keep markets nervous for now.

Markets had a rellef rally last week. As we mentioned a couple of weeks ago, the technicals were oversold, and looking for a positive trigger to go up. That trigger came this week with the FOMC decision to hold interest rates at current levels, as well as softish data on jobs and inflation. If the markets are able to push through key levels over the next few days, then the move could go higher into the year-end. Of course, the Hamas-Israel conflict is likely to cast a shadow depending on how it progresses.

While the US economy has managed to display surprising strength thus far, it is difficult to see this continue given the unbridled growth in federal debt. Bond markets are expressing their concerns with rise in yields to 16-year highs. Stock markets are likely to catch up at some point in time.