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As to the fundamentals, history suggests that the rapid rises in the dollar, interest rates and oil prices over the past couple of years represent a uniquely bearish trifecta that will likely have a very negative effect on earnings over the next year or so.
This can be a case of “bad news is good news” because this increase in late loans shows a tightening of the money supply among consumers.
If people are making late payments, it means their savings may be getting depleted enough to slow spending.
The VIX threshold of 40, which represents an extremely elevated number, seems to be a level in the past where the Fed begins to pivot its interest rate stance. If that continues, we may face further downward pressure on markets before they ease based on current VIX prices.
Stocks are certainly cheaper at 16.4x forward P/E, but arguably they aren’t cheap versus longer run averages and the prevailing interest rate.
One bright spot was energy an oil.
OPEC “shocked” the White House with their refusal to pump more and curb prices.
There is increased “short interest” on Credit Suisse which implies there are increasing negative bets on the stock.
Speculators are underestimating the likelihood of the Swiss Government will step in and help.
Either way, we will monitor this number closely for any major rise (>10-15%).
The drop in European merger and acquisition loans can mean a decline in new high yield issuers as well.
As rates rise and companies hit harder times, they will borrow less, driving existing notes higher, and yields can plateau or go lower.
OPEC’s production cut will cause a supply deficit going into the last quarter amid concern over a challenging winter ahead.
If the cuts persist through 2023, $90-$100 per barrel oil will be the new normal for awhile.
Oil has broken a three-month downtrend, breaking out above its moving price averages.
OPEC’s cuts can see this trend continue through the winter.
Look for Biden to continue “borrowing” from the US strategic reserves, prior to the mid-term elections.
Fairly heavy economic calendar ahead with Core PPI and Fed minutes Tuesday 10.11.22
Look for any “dovish” of at least “less hawkish” language from the meeting.
Earnings season kicks off this week, with PEP, DAL, JPM, and C all reporting.