Q4 into the swing of things

The first week of the final quarter of 2022 is in the books. And like the rest of the year, there was no shortage of eyebrow-raising price moves.

After kicking off Q4 with its biggest two-day rally since April 2020, the S&P 500 (SPX) pulled back the remainder of last week—particularly sharply after Friday’s jobs report—but still managed to log its first up week since September 9:

The headline: Stocks swing as traders prep for inflation numbers and earnings.

The fine print: Friday’s jobs report appeared to be stock-market “friendly,” in that it was, overall, slightly soft: According to the prevailing logic, a too-hot (i.e., inflationary) labor market would give the Fed reason to keep aggressively hiking interest rates, which would be a headwind for equities. Apparently traders didn’t think the numbers were soft enough, though, because stock index futures turned negative after the report was released, and the market slid to its third-straight down day.

The number: 2 million, the barrels per day of crude oil that OPEC and its partners will cut from production starting in November.¹ Oil, gasoline, and the S&P energy sector all rallied sharply last week.

The move: Chipmaker Advanced Micro Devices (AMD) slid 14% on Friday after warning that its Q3 numbers would likely come in below Street expectations.

The scorecard: The small-cap Russell 2000 (RUT) led the US market for a second week:

Sector roundup: The strongest S&P 500 sectors last week were energy (+13.9%), industrials (+2.9%), and materials (+2.2%). The weakest sectors were real estate (-4.1%), utilities (-2.5%), and consumer discretionary (-1%).

Stock movers: Myovant Sciences (MYOV) +36% to $24.44 on Monday, Inhibrx (INBX) +47% to $29.76 on Tuesday. On the downside, AngioDynamics (ANGO) -20% to $17.34, Integer (ITGR) -17% to $55.28—both on Thursday.

Futures: November WTI crude oil (CLX2) posted its biggest weekly gain (more than 16%) since February, closing Friday at $92.64. After hitting a three-week high last Tuesday, December gold (GCZ2) drifted lower to end the week modestly higher at $1,709.30/ounce. Week’s biggest up moves: November heating oil (HOX2) +25%, November WTI crude oil (CLX2) +16.5%. Week’s biggest down moves: December wheat (ZWZ2) -4.5%, December oats (ZOZ2) -2.8%.

The latest inflation numbers take center stage this week:

●Tuesday: NFIB Business Optimism Index, Consumer Inflation Expectations
●Wednesday: Producer Price Index (PPI), FOMC minutes
●Thursday: Consumer Price Index (CPI)
●Friday: Retail Sales, Import and Export Prices, Michigan Consumer Sentiment

The last earnings season of 2022 kicks off with big banks:

●Monday: Voxx International (VOXX)
●Tuesday: AZZ (AZZ), PepsiCo (PEP)
●Wednesday: Duck Creek Technologies (DCT)
●Thursday: Walgreens (WBA), Blackrock (BLK), Fastenal (FAST), Delta Airlines (DAL), Goldman Sachs (GS)
●Friday: US Bancorp (USB), Citigroup (C), Wells Fargo (WFC), Morgan Stanley (MS), JPMorgan Chase (JPM)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

Despite pulling back to a two-week low last Tuesday, the US dollar index (DXY) bounced to end last week up more than 17% for the year, and not too far below the 20-year high it hit on September 28:

In addition to highlighting the pressures an exceptionally strong dollar can have on US exports (and thus, earnings of US companies), Morgan Stanley & Co. analysts recently viewed the strong-dollar conundrum from a slightly different angle—how it could play a role in getting the Fed to “back off” from its tightening policy.

The rub: Even if continued dollar strength eventually contributes to the Fed switching from raising rates to cutting them—which the analysts see as a possibility—the timing of such a pivot remains uncertain, and wouldn’t change the downward trajectory of corporate earnings (in which case additional stock market downside is likely).² They also noted that anticipation of a Fed pivot can lead to sharp rallies like the one that occurred early last week.

With earnings season starting later this week, we may soon have more perspective on how these dynamics will play out in the markets. 

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¹ CNBC.com. OPEC+ to cut oil production by 2 million barrels per day to shore up prices, defying U.S. pressure. 10/5/22.
² MorganStanley.com. The Problem with the U.S. Dollar. 10/3/22.