Markets have momentum. Can it last?

Who would have predicted a positive market so far this week?

It certainly didn’t feel like it would be a positive start to the week after Israel formally declared war on Hamas and Prime Minister Benjamin Netanyahu vowed “mighty vengeance”.? But who can predict the markets?

Thousands of people have died since the hostilities began last week in Gaza following retaliation by the Israeli Defence Forces.?

Stocks opened up in Asia on Sunday night and looked set to take a hit. Global equity futures dropped between 1% and 2%. A small hit, but an inevitable fall in risk-on sentiment was evident.

However, strangely, stocks are now up on the week. Another lesson learnt by those who think they understand the market.

Often, we look for reasons where there are none and this appears to be one of those times.

Oil was clearly set to rise as conflict in the Middle East broke out, but even that didn’t hold and has fallen back down to $83 a barrel. Don’t get me wrong, this is great news, we really don’t want higher oil prices, but surely pretending there isn’t a problem won’t hold them down for long.

The only straws that traders might be able to clasp at, are the comments made by Dallas Fed President Lorie Logan on Monday. She said that ‘the recent rise in long-term U.S. Treasury yields, and tighter financial conditions more generally, could mean less need for the Federal Reserve to raise interest rates further’.

Then on Wednesday we saw a hotter-than-estimated inflation reading but this too was shrugged off as traders held on to the less hawkish comments made earlier in the week.?

On Wednesday however, these comments were offset by Federal Reserve Governor?Michelle Bowman?who said?interest rates?may need to rise further and stay higher for longer than previously expected to get?inflation?down to the central bank’s goal.

Despite recent improvements, “inflation remains well above the FOMC’s 2% target.? Domestic spending has continued at a strong pace, and the labour market remains tight,” Bowman said Wednesday in remarks prepared for an event in Marrakech, Morocco, on the sidelines of the World Bank/International Monetary Fund annual meetings.

“This suggests that the policy rate may need to rise further and stay restrictive for some time to return inflation to the FOMC’s goal.”?

Right now, I don’t think anyone knows what to believe. It’s best just to keep studying the data as it comes through and try to ignore most of the noise along the way.

On that note, the?S&P 500?gained for a fourth straight session, rebounding from technically oversold levels.?Tech megacaps?outperformed, while?Exxon Mobil?led losses in energy shares after agreeing to buy?Pioneer Natural Resources Co.?for $59.5 billion.

Treasury?10-year yields?declined five basis points to 4.60%. The?dollar?headed toward its longest losing streak since March.

What looked set to be a week of risk-off, seems to have quickly turned around as buyers have come into the market. Perhaps it’s one of those ‘things can’t surely get any worse’ type of buyer scenarios.

The producer price index, reported Wednesday,?rose by more than forecast in September, bolstered by higher energy costs that continue to wrinkle the path toward sustainably lower inflation. Policymakers will also see the latest?consumer price index?report, out later today, before their meeting that concludes Nov. 1.

“Today’s CPI could paint a different picture, but yesterday’s PPI suggests we haven’t seen the end of sticky inflation — and high interest rates,” said?Mike Loewengart, head of model portfolio construction at Morgan Stanley Global Investment Office. “Either way, investors will need to remain patient. Lowering inflation significantly from last year’s highs was one challenge, getting it down to the Fed’s 2% target level is another.”

Messages are so mixed right now, that it’s hard to know what to believe. Even Putin has come out condemning ‘catastrophic’ civilian deaths in the Israel-Gaza war. Feels a little like the pot calling the kettle black, but that’s how turned upside down everything feels right now.

JPMorgan Chase,?Citigroup.?and?Wells Fargo?will kick off the earnings season Friday, with the biggest US banks poised to write off more bad loans than they have since the early days of the pandemic as higher-for-longer interest rates and a potential economic downturn put borrowers in a bind.

The biggest US banks are poised to write off more bad loans than they have since the early days of the pandemic as?higher-for-longer?interest rates and a potential economic downturn are putting borrowers in a bind.

JPMorgan Chase & Co.,?Citigroup Inc.?and?Wells Fargo & Co., which report third-quarter results Friday, will join?Bank of America Corp.?— which comes Tuesday — in posting roughly $5.3 billion in combined third-quarter net charge-offs, the highest for the group since the second quarter of 2020, according to data compiled by Bloomberg.

The figure is more than twice as high as a year earlier, as lenders contend with consumers struggling to keep up with rising interest rates and a commercial real estate industry still grappling with the fallout from the pandemic. Citigroup Chief Executive Officer?Jane Fraser?said last month that her bank is starting to see?signs of weakness?in US consumers with low credit scores, who have had their savings eaten away by historic levels of inflation. Still, she said the vast majority have been able to handle the rate increases.

“Any hiccups in credit will be punished by the market,”?Erika Najarian, an analyst at UBS Group AG, said in a note to clients. “That said, there has been surprisingly little conversation about third-quarter credit quality for large cap banks, even on either commercial real estate or some of the more publicized bankruptcies.”

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It is worth noting that while these right-offs have increased dramatically, they are only back to similar levels before the pandemic. It’s not yet a reason for panic, as long as the increases level out rather than get worse.

Bad loans on the back of higher rates are certainly the most likely cause of the next big thing, but fingers crossed that disaster is averted.

We aren’t saying the market should fall, but we are a little confused by the rally and optimism that seems to be prevailing so far this week, long may it continue.

Closing Comments:

Although sometimes market movements can be confusing, perhaps there was something in the air that our trading teams sensed.

This week (so far) has been a positive one for TPP and our loyal clients.

Over the last two to three weeks, global markets have fallen and?we have witnessed BUY positions entered across our strategies.?In short- our traders were?BUYING INTO A FALLING MARKET.

This week as the markets have bounced back, our strategies have profited, and many have already started to take profits and reduce exposure.

Why merely track a market, when?opportunities can be taken advantage of in the short and mid term?

Adding small increments as the markets fall?is one of many ways our strategies make modifications to?consistently beat the markets.

If you're frustrated with what many?believe is a stale and outdated wealth management model- then consider arranging a call with our team.

We are also of the opinion that the industry needs revamped, and that wealth and asset managers have no excuses for failing to beat their benchmarks most years.

Investors want more than 4, 5, or?6% per annum, without taking on excessive risk.

Investors are frustrated with the poor performance and excessive fees.

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