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There was no October surprise on the equity market front, in fact, quite the opposite.
Despite soaring inflation, rising recession fears, intensifying Ukraine War, job layoffs, home sales slumping, mortgage and interest rates rising, a mixed third-quarter earnings season and slow growth warnings from companies such as the Amazon giant—which accounts for nearly 40 percent of the U.S. e-commerce sales—it was a great month for The Street.
And no need to worry about falling government bond prices and rising yields which usually slams the stock market. On Monday, the 10-year Treasury Yield hit 4.074 percent compared to 3.802 percent at the end of September.
Making absolutely no sense considering the hard data and failing economic fundamentals, snapping a two month losing streak, the major averages racked up their best month since 1976. Scoring its best October ever, the Dow spiked up 14 percent, the S&P rose nearly 8 percent and the tech-heavy Nasdaq climbed almost 4 percent.
Now of course, all eyes are on Wednesday when the Federal Reserve will announce how much they will raise interest rates following their meeting and how low they will go when they meet again in December.
With annual inflation at 8.2 percent in America, the guess on The Street is that the Feds will raise interest rates to 4.75 percent—5 percent range next year.
TREND FORECAST: We maintain our forecast that when interest rates move above 4 percent the U.S. economy will sink in deep recession. And the higher U.S. interest rates rise, the deeper dollar indebted emerging markets will dive… and so will all those businesses, hedge funds, private equity groups and individuals whose loans are not fixed and unsecured.
Among the hardest hit sectors, which never a word is heard in the mainstream media, will be commercial office buildings and commercial real estate sectors that depend on commuters. The work-at-home trend that was born with the outbreak of the COVID War when politicians forced businesses to close down and people to stay locked up in their homes has become the new reality.
After spending months at home working remotely, the reality of disgusting multi-hour commutes to-and-from work hit the hearts and souls of employees who will no longer endure the mental degradation of commuting. Therefore, office occupancy rates will continue to stay well below pre-COVID War levels as people commute to work a few days a week… or not at all. And for employers who need less rental space because of fewer employees coming to work, cutting back on office space is a money saver.
TREND FORECAST: As the old saying goes, “It’s the economy stupid.” And with the U.S. midterm elections next Tuesday and polls showing that the major issue facing the public is the economy. Indeed, a headline in yesterday’s Wall Street Journal read: “Economy Tops Other Issues In Campaign’s Final Stretch.”
Therefore, we forecast that although they may raise interest rates 75 basis points, the Fed’s message will be for lower hikes in the future which will prove bullish for equities. Therefore, the higher equities rise between now and next week, the better the prospects that people will vote for the ruling party.
Home Alone
Since the COVID War began and the central Banksters brought interest rates to record lows and governments pumped in countless trillions to artificially pump up equities and economies, besides the Bigs getting bigger with record merger and acquisition activity hitting an all-time high in 2021, Main Street also cashed in on the cheap and free money bonanza with their home buying spree.
When the phony subprime real estate market exploded during the Panic of ’08, home prices in the U.S. fell 27 percent between 2006 and 2012. While we do not forecast such a sharp decline as interest rates rise and the housing market slumps, the signals are flashing “Danger Ahead.” For example, already the Case-Shiller Index shows that home prices are down 8.2 percent in San Francisco. Yes, the city that was among the first to lockdown and imposed draconian mandates that destroyed lives and livelihoods while boosting the homeless and crime rates.
With still a long way to go down since home prices shot up 43 percent during the COVID War housing boom, marking the first national home price decline since 2012, U.S. home prices have fallen 1.6 percent between June and August.
And the facts of decline are in the numbers. Quarter-to-quarter real growth in construction spending has been negative for four of the last five calendar quarters and is down at an annualized quarter-to-quarter pace of 16.7 percent according to Shadow Stats.
They also note that on the inflation side of life, headline year-to-year September 2022 PPI Construction Inflation of 23.09 percent notched higher from 22.95 percent in August.
Before the COVID War and before the record low interest rates and the estimated $8 trillion of dollars of fake money Washington pumped into the economy, Shadow Stats also notes that the highest annual pace of Construction Inflation increase in the modern PPI had been shy of 6 percent, back in 2018.
Sales Slowdown
Sales of existing homes have been sliding for eight months running while sales of new homes dropped 10.9 percent in September from August and 17.6 percent from a year earlier, the U.S. Commerce Department reported last week.
Rising interest rates caused the decline, according to The Wall Street Journal.
Meanwhile, the median selling price of a newly built home climbed to $470,600 during the month, a gain of 13.9 percent over that in September 2021, the department said.
September is the fourth month this year that sales of new homes dropped 10 percent or more, month over month and April marked the biggest drop at 12.4 percent.
In the week ending 21 October, applications for mortgages to buy homes plunged 42 percent from a year previous, the Mortgage Bankers Association said.
Over There
And the bad data keeps getting worse. Hitting 9.9 percent in September—the highest inflation rate since the euro was invented 23 years ago—for October, consumer prices in Europe surged to a record high of 10.7 percent.
The latest high, reported by the European Commission’s statistics arm Euro-stat, also outstripped the 10.2 percent expected by economists polled by Reuters. It was the 12th consecutive month that inflation had set a record high in the Eurozone, taking it to more than five times the ECB’s 2 percent target.
In September, thanks to rising food and energy costs, the bloc’s overall inflation rate hit almost 11 percent.
While the data shows where it came from, Christine Lagarde, the head of the European Central Bank said last Friday that they raised interest rates “because we are fighting inflation,” that “pretty much came about from nowhere.”
And rather than blaming the United States and NATO for imposing strict sanctions on Russia and their cutting off Russian oil and gas supply into Europe, Lagarde bullshitted that “the energy crisis caused by Mr. Putin who has decided in an unjustifiable way to invade another country”… unlike American and NATO’s “unjustifiable” invasions of Yugoslavia, Iraq, Libya, Afghanistan, etc.
And as we have noted, even with the two 0.75 rate hikes which bring the rate to 1.5 percent, real EU interest rates remain deep in negative territory. And, with the economy long weakening despite some eight years of negative interest rate policy, now, the tiny hikes will cause the euro area to dive into recession.
Gross domestic product in the Eurozone slowed in the third quarter, rising 0.2 percent from the previous quarter according to Eurostat… a slowdown from 0.8 percent growth in the previous quarter.
And with GDP increased slightly in Germany, France, Italy and Spain reported sharp declines.
However, while Germany racked up GDP growth, inflation spiked 10.4 percent in October according to preliminary figures.
Not So Good News
Still showing a slowdown in growth, but better than expected, the purchasing managers’ index (PMI) for China’s manufacturing sector came in at 49.2 in October, down from 50.1 in September, the National Bureau of Statistics reported.
A reading above 50 indicates expansion, while a reading below reflects contraction.
And over in India, The Indian rupee continued its ten month slide against the dollar. Notching up its worst losing streak in almost four decades, the rupee hit new lows against the dollar in October and is down nearly 11 percent for the year.
TREND FORECAST: The equation is simple, the higher the U.S. Federal Reserve raises rates, the steeper most currencies will fall.
Emerging market nations are leaking investment capital as fast as they continue to pile up debt. A number of the countries have extraction economies—selling minerals, timber, and other raw materials. But inflated prices for imports and the declining value of their currencies—which has them buying less but costing more – will exceed their export revenues. As a result, emerging nations will be pushed into Dragflation, our Top 2022 Trend in which economies shrink under high prices.
With Dragflation setting in, many countries will find it harder and harder to service their massive debts, pushing many of these nations into default. And again, the more dire the economic realities, the greater the escalation of people taking to the streets to protest lack of basic living standards, government corruption, crime and violence.
And the more intense the social uprising, the greater the risk for civil wars that will expand to regional wars.
LAST WEEK: FRIDAY RALLY CONTINUES INDEX’S RUN
The Dow Jones Industrial Average’s 800-point Friday rally helped lift all three major U.S. stock indexes into positive territory for the week.
For the week, the Dow added 5 percent.
NASDAQ was drifting down through Wednesday until Intel and Apple reported earnings that shot far beyond analysts’ expectations. Their share prices jumped 11 percent and 8 percent, respectively.
The NASDAQ closed the week up 2.1 percent.
The Standard & Poor’s 500 gained 3.6 percent last week. Like NASDAQ, it was trending down until Friday’s rally sent it back up.
Stocks of companies in consumer staples, finance, and real estate performed well. Companies dealing in discretionary consumer goods made up the only one of the S&P’s 11 sectors to end the week lower.
ExxonMobil’s stock price shot up 2.7 percent after the company posted a $19.7-billion profit due to “rigorous” cost cutting and a global run on natural gas. Chevron also reported a stellar third quarter, boosting its market value.
Investors often see October as jinxed: it marks anniversaries of the 1929 market crash and 1987’s Black Monday.
However, this year October has lifted the Dow by 14 percent, its best monthly result since January 1976.
In contrast, tech companies—especially Alphabet, Amazon, Meta that recently wielded disproportionate power to move markets—have lost their luster, with all three seeing share values fall last week.
They may be a harbinger of a looming broader decline, some market watchers fear, citing weakening consumer spending amid rising inflation and interest rates.
Also, the third-quarter earnings growth rate among S&P-listed companies is 2.2 percent, sinking back near 2020 levels.
“My gut feeling is that tech companies are heading where other companies will follow in the coming months,” CEO Dan Boardman-Weston at BRI Wealth Management told the WSJ.
Yields on the benchmark 10-year treasury note rose back above 4 percent on Friday, ending at 4.009 percent after settling at 3.938 percent on Thursday. Yields rise as bond prices fall.
Spot gold fell 1 percent through the week to $1,643 at 4 p.m. U.S. EDT on 28 October.
The price of Brent crude oil for December delivery climbed 2.9 percent to $96.22 at 5 p.m. U.S. EDT on 28 October. West Texas Intermediate, which sets the U.S. oil price, gained 3.7 percent to $88.21 at 5 p.m. U.S. EDT on 28 October.
Bitcoin broke up through the $20,000 mark to reach $20,710 at 5 p.m. U.S. EDT on 28 October.
Abroad, the European Stoxx 600 joined in Friday’s rally, rising 3 percent for the week. London’s FTSE grew by 1.1 percent.
In Asia, the Japanese Nikkei 225 shed 0.5 percent on the week, while South Korea’s KOSPI index managed to add 0.8 percent.
Chinese traders were glum on president Xi Jinping’s pledge to continue massive lockdowns to contain the COVID virus.
The Hang Seng index in Hong Kong blew off 6.7 percent, the SSE Composite fell 3.9 percent, and the CSI Composite gave up 5 percent.
YESTERDAY: QUIET HALLOWEEN SESSION AS INVESTORS WAIT FOR CENTRAL BANK’S NEXT MOVE
The Dow Jones Industrial Average fell 128.85 points, or 0.4 percent, to 32,732.965, and the S&P 500 fell 29.08 points, or 0.7 percent, to 3,871.98. The tech-heavy Nasdaq Composite fell 114.31, or 1 percent, to 10,988.15.
The Dow is ending its best month since 1976, and added 14 percent to its value. Much of that gain came on the heels of recent reports indicating what we had forecast over a month ago… that the Federal Reserve may take its foot off the gas in its fight against uncontrolled inflation.
The Federal Reserve will hold a two-day meeting that begins today, and it will announce a decision on interest rates tomorrow.
Elsewhere, Britain’s FTSE was up 46.86 points, or 0.66 percent, to 7,094.53 and the STOXX 600 gained 1.44, or 0.35 percent, to 412.20. In Asia, Japan’s Nikkei gave back 13.76 points, or 0.05 percent, to close at 27,573.70, and South Korea’s Kospi was up 18.68, or 0.81 percent, to 2,312.29. The Shanghai Composite gained was essentially unchanged at 2,893.47 and the Shenzhen Component was flat.
The European Central Bank has said it will keep working to bring down inflation that hit 10.7 percent, and the euro zone is likely to enter recession.
Business activity in the bloc contracted in October at its fastest rate in two years, a S&P Global survey said.
Chinese yuan fell on news indicating that China’s factory activity fell in October due to the lack of global demand and its “Zero-COVID” lockdowns.
The BBC reported that workers at Apple’s largest iPhone assembly factory in the central city of Zhengzhou have attempted to break out of the facility that has been under government lockdown.
The report said it was not clear how many people came down with the virus at the Foxconn facility, but at least 10 could be seen jumping over a fence. Disney’s Shanghai resort was also forced to temporarily close.
TRENDPOST: Everywhere you look, there’s bad news, but stocks continue to do well which is further proof that the game is rigged for the BIGS. Gerald Celente said last month that the Fed may increase interest rates by possibly .50 or even .25 basis points to hand Democrats election wins during the midterms. Indeed, they may also raise them .75 basis points tomorrow, but guaranteed, as the records show, they will lower rates before the presidential election to favor the incumbents.
OIL: Brent Crude was unchanged on Monday, and was trading at $94.83 per barrel and West Texas Intermediate was also essentially unchanged and closed at $86.53 per barrel.
Oil output in the U.S. reached nearly 12 million barrels a day in August. The number marks the highest output since the start of the COVID outbreak.
President Joe Biden, concerned about the thrashing in the upcoming midterm elections, said Monday that any oil and gas companies that do not earmark some of their profits to bring down prices for customers will face a penalty.
“At a time of war, any company receiving historic windfall profits like this has a responsibility to act beyond the narrow self-interest of its executives and shareholders,” he said.
Mike Sommers, the president of the American Petroleum Institute, an oil and natural gas industry trade group, told The Wall Street Journal that the president’s criticism was misguided.
“Oil companies do not set prices—global commodities markets do. Increasing taxes on American energy discourages investment in new production, which is the exact opposite of what is needed,” he said.
TRENDPOST: President Biden has tried to blame high energy prices on everyone but himself and NATO who imposed strict sanctions on Russia to “punish Putin… his all-time favorite target. Instead, as we have detailed, the sanctions that cut off Russian oil and gas supplies have punished the people and businesses.
Then the White House blamed OPEC+ for cutting back supply, but that didn’t work either. Now it is the oil industry.
Once again, the people are paying for Washington’s failed foreign policy.
GOLD: The precious metal was down about $4.20, or 0.26 percent, to $1,636.50, as the 10-year Treasury yield rose to 4.074 percent and the dollar also saw gains of 0.8 percent against other currencies.
Gold is a non-yielding asset and becomes less attractive for foreign investors when the U.S. dollar sees gains. Like the rest of the market, gold investors are waiting until the Fed gives its take on inflation on Wednesday, and whether it will raise rates another 75 basis points to up to 4 percent. The Street is anticipating another 75-basis point increase.
Reuters noted that gold prices have fallen more than $400 since scaling above the key $2,000 per ounce level in March, in the early stages of the Ukraine War.
Spot silver also fell 0.5 percent to $19.13 an ounce.
TRENDPOST: Gerald Celente has said gold should be trading significantly higher than its current price due to all of the world’s uncertainty. The Ukraine War is expanding. Russia accused the U.K. of assisting Ukraine in a drone attack on its Black Sea Fleet during the weekend that has jeopardized the grain deal. We forecast that low gold prices are just temporary and it remains the world’s #1 safe haven asset.
BITCOIN: The world’s most popular crypto hung around $20,508 most of the day Monday, as investors breathed a sigh of relief that the coin was trading higher than its $19,000 plateau.
Elon Musk has been everywhere in recent weeks, and his purchase of Twitter has sparked debate about his next moves and what he will do with the platform. Late Monday night, Musk tweeted a photo of a photo of a Shiba Inu, the dog breed that is something of a Dogecoin mascot, wearing a Twitter shirt, raising speculation that a project is in the works.
DOGE is up 101 percent this month.
Musk has spoken about Dogecoin in the past. CoinDesk noted that in May 2021, he appeared on “Saturday Night Live,” and said, “Call me the Dogefather.” He also once tweeted a photo of himself holding a Shiba Inu. He once considered charging 0.1 Dogecoin per tweet, which the outlet noted could have been a joke.
TRENDPOST: As of early Tuesday, Dogecoin was trading at 14 cents per coin. Its high was 64 cents per coin in May 2021, when bitcoin was trading at $37,000 a coin. Musk is a wildcard in the crypto world. He is riding a winning streak with SpaceX and Tesla, but Twitter faces a drying advertising market and real competition from other “hipper” platforms like TikTok. There’s also a risk that Musk says something that gets him canceled by businesses that advertise on Twitter.
If Musk fails to revitalize Twitter, Dogecoin may go with it.
TODAY: STOCKS END DAY LOWER FED PREPARES TO RAISE INTEREST RATES
The Dow Jones Industrial Average was down 79.75 points today, or 0.24 percent, to 32,653.20, and the benchmark S&P 500 also fell 15.88 points, or 0.41 percent, to 3,856.10. The Nasdaq Composite was down 97.30, or 0.89 percent, to 10,890.85.
The Bureau of Labor Statistics released its September job openings data and found that the number jumped to 10.72 million, which is above the 9.85 million that had been estimated by economists. They anticipated a lower number of vacancies after an August drop.
The Street sees the increase in jobs as more ammunition for the Feds to push interest rates to get control of inflation, a decision they will reach tomorrow.
On the downside, the Institute for Supply Management’s manufacturing purchasing managers index fell to 50.2, which was 0.7 percent lower than recorded in September. Below 50 signals contraction. However, it was the 29th consecutive month of growth after contractions in April and May 2020, when the COVID-19 outbreak was taking hold.
The New Orders Index remained in contraction territory at 49.2 percent, 2.1 percentage points higher than the 47.1 percent recorded in September.
“The U.S. manufacturing sector continues to expand, but at the lowest rate since the coronavirus pandemic recovery began. With panelists reporting softening new order rates over the previous five months, the October index reading reflects companies’ preparing for potential future lower demand,” a statement from the institute read.
Raw materials prices fell for the first time in 28 months in October, which was seen as evidence that the Fed has made some progress in its inflation fight. About 4.1 million workers voluntarily quit their jobs, down from 4.2 million in August.
Elsewhere, Britain’s FTSE was up 87.67 points, or 1.24 percent, to 7,182.33, and the STOXX600 was also up 1.87, or 0.46 percent, to 414.08.
In Asia, Japan’s 91.46 points, or 0.33 percent, to 27,678.92, and Hong Kong’s Hang Seng jumped 768.25, or 5.23 percent, to 15,455.27. South Korea’s Kospi was up 41.61, or 1.81 percent, to 2,335.22. China’s market was also in the green, with the Shanghai Composite up 75.72, or 2.62 percent, to 2,969.20 and the Shenzhen Component was up 337.21, or 3.24 percent, to 10,734.25.
OIL: Oil prices were trading higher today as the U.S. dollar weakened. There have been lingering concerns about China’s continued “Zero-COVID” effort. As of mid-day today, Brent crude was up $1.82 per barrel, or 1.92 percent, to $94.64 and West Texas Intermediate was trading up $1.82 to $88.36 per barrel.
Oil has become a hot-button issue in the U.S. before the midterm elections. President Joe Biden has blamed oil companies of gouging customers at the pump and threatened them with, but Republicans have blamed the president’s policies.
“Biden is threatening domestic oil producers with a tax if they don’t bring prices down,” Sen. Marsha Blackburn, R-Tenn., posted on Twitter. “Blaming others won’t work, Mr. President.”
Rep. Thomas Massie, R-Ken., also tweeted, “Biden tells oil industry to lower prices and increase volume, or else he’s going to raise prices and decrease volume…by increasing taxes and imposing restrictions. In what universe does his threat make sense or help Americans.”
TRENDPOST: Oil prices remain a wildcard because there are so many unpredictable geopolitical factors at play.
The Wall Street Journal reported today that the U.S. and Saudi Arabia are on high alert after a warning of an “imminent Iranian attack.” The report, citing Saudi and U.S. officials, said Tehran is prepared to attack Saudi Arabia and Erbil, Iraq, to “distract attention from domestic protests that have roiled the country” since the death of Mahsa Amini in morality police custody.
The U.S. said it will “not hesitate to act in the defense of our national interests and partners in the region.”
China’s Xi Jinping has also shown a willingness to crash the global economy in his “Zero-COVID” effort. About 800,000 people were locked down in Wuhan last week – again. One resident told the BBC, “We feel numb to it all. We feel more and more numb.”
GOLD: Gold was up 9.10, or 0.55 percent, to $1,649.50 an ounce as of 4:25 p.m. ET today, and silver was up 49 cents, or 2.59 percent, to $19.61.
Gold is known as the best asset to own during turbulent times and a hedge against inflation, Traditionally, high inflation will lead investors to buy gold and drive up costs. But the precious metal has faced headwind from a strong U.S. dollar and rising Treasury yields.
From 2001 to 2012, for example, the long-term real interest rate fell 400 basis points and resulted in a fivefold increase in gold prices, according to numbers from the Chicago Fed.
TRENDPOST: Central banks are buying gold at a pace not seen since 1967. A new World Gold Council report found that demand for the precious metal was up 28 percent year-on-year.
QZ.com noted that Turkey was the biggest purchaser, followed by Uzbekistan, which purchased 26.13 tons. China and Russia does not report its gold purchases. A total of $20 billion was spent on gold from these central banks.
These banks are searching for safe havens while their countries face soaring inflation.
BITCOIN: The world’s most popular crypto currency was trading about level today – in the $20,472 range as traders waited for news from the Federal Reserve about its next interest rate hikes.
The Trends Journal has long noted that bitcoin often tracks the overall stock market – especially the tech-heavy Nasdaq. Cryptos face headwind when Treasury yields increase. The 10-year Treasury fell 2 basis points to 4.061 percent, and the 2-year Treasury increased 4 basis points to 4.51 percent.
TRENDPOST: Last week, Bitcoin “HODLers,” which refer to cyrpto advocates who “hold on for dear life,” celebrated the 14th anniversary of Satoshi’s Bitcoin White Paper, calling for a “Peer-to-Peer Electronic Cash System.”
The idea would skip any third parties, aka: banks. These transactions would be memorialized in an “ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.”
This proof-of-work system is why some doubt that bitcoin will ever be able to handle millions of transactions a day, thus an efficient way to make payments.
Bitcoin hit its high of over $68,000 a coin in November 2021 and went as low as $18,815 in September. Traders will watch to see how bitcoin responds to this week’s Fed interest rate hike.