Market Swings Amid Powell's Comments, Global Uncertainty and Economic Headwinds

Gold and oil prices surge as volatility rises; housing market faces slowdown

• Market turbulence occurs as Powell's comments, global conflicts and economic challenges raise uncertainty.
• Gold and oil surge amid rising volatility; economic data signals housing market slowdown.
• Earnings season begins with American Express outperforming; market awaits reports from tech giants and reacts to political gridlock.

The stock market was like a boxing match, with significant fluctuations before closing lower. The S&P 500 declined by 0.8%, with 10 of its 11 sectors ending in the red, while the Nasdaq Composite also closed lower with a 1% drop. Both indexes breached their short-term 21-day moving averages and are approaching their respective 200-day moving averages. The day's turbulence began as Federal Reserve Chair Jerome Powell delivered remarks on his outlook for interest rates.

In his initial comments, Powell hinted at the reduced need for further interest rate hikes, considering that the bond market had already been doing the heavy lifting. However, his speech was momentarily disrupted by protestors, and when he resumed his statements seemed to contrast starkly with his initial remarks. Powell stated that he did not believe monetary policy was tight enough to increase the risk of a recession, and that interest rates might need to remain at elevated levels for an extended period. This inconsistency whipsawed the market and left many puzzled. It's possible that Powell, like many, is grappling with the multitude of factors affecting the economy at the moment.

As conflicts in the Middle East and Ukraine show no signs of abating, President Biden addressed the nation, seeking increased foreign aid for Israel and Ukraine. However, the absence of a speaker of the House is hindering legislative action. This legislative gridlock not only affects foreign aid but also raises the specter of a potential government shutdown next month. The confluence of economic, political and geopolitical challenges is making it challenging for the markets to find a clear direction, and earnings season is adding to the uncertainty.

On the economic front, existing home sales are feeling the pressure, with a 2% slowdown from August to September. Year-over-year, sales have declined by over 15%, marking the most significant slowdown in over a decade. The rise in interest rates, with 30-year mortgages approaching 8%, has played a role in this decline. Mortgage rates are directly influenced by movements in the bond market, where 10-year yields have been approaching 5%, reaching an intraday high of 4.99% yesterday. The last time yields reached these levels was in 2007.

Market volatility has surged in response to these developments, with the Chicago Board Options Exchange volatility index, or VIX, spiking yesterday by 11% to 21.40. Investors are seeking safe havens, leading to a 9% increase in the price of gold in just the past few weeks. With uncertainty mounting, it's not surprising to witness this uptick in volatility and commodity prices. Gold's surge is complemented by a similar trend in crude oil, which has reached $90 per barrel, a 10% increase since its intraday low of $80.20 on Oct. 6.

On the earnings front, American Express (AXP) reported its 3Q earnings, surpassing profit expectations. The company marked its sixth consecutive quarter of record revenue and noted strong overall spending, particularly in travel and entertainment. In premarket trading, American Express shares remained relatively stable. Looking ahead, the next week promises substantial earnings reports, with Google (GOOGL) and Microsoft (MSFT) scheduled for Tuesday after the close. Meta (META), the parent company of Facebook, will release earnings Wednesday, followed by Amazon (AMZN) on Thursday.

A few other points of interest include ongoing negotiations between the United Auto Workers (UAW) and General Motors (GM), possibly ending the ongoing strike. Additionally, Bitcoin's value is hovering around $30,000, reflecting hopes for the approval of an exchange-traded fund (ETF).

As we head into the weekend, if you're feeling uncertain about market direction, you're not alone. The recent wild market swings illustrate the volatility and unpredictability of the current landscape. This underscores the importance of maintaining a disciplined and measured approach to trading, minimizing emotional influences. Trading too large can evoke emotional responses, making it crucial to adhere to a systematic and controlled strategy. Let the market find its equilibrium. As always, stay aligned with your investment plans and long-term objectives.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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