Anticipating Major Event Risks and Earnings Reports
Technical analyst Mark Arbeter, president of Arbeter Investments, wrote in a client note that it could be the most significant week for ‘event risk’ in many years. He suggested we could also consider it as ‘event reward.’ This week presents a busy schedule of earnings releases, including Microsoft, Apple, Alphabet, Amazon, and Meta Platforms. Investors are also bracing themselves for the Federal Reserve’s interest-rate decision, jobs market data, and the Treasury’s quarterly refunding.
Potential Reprieve for Markets
The Treasury Department provided a potential relief for markets on Monday afternoon, stating that it expects to borrow $760 billion in the first quarter, $55 billion lower than previous estimates. This announcement caused the benchmark 10-year Treasury yield to drop by 8 basis points during afternoon trade, reaching 4.07%. Earlier in October, the yield had hit a 16-year high, primarily due to concerns regarding heavy Treasury supply and the possibility of prolonged higher rates set by the Fed.
Richard de Chazal, a macro analyst at William Blair, explains that given the Fed’s data-dependent approach and their need to regain credibility in fighting inflation, it is likely they will continue to steer away from a March rate cut. However, they may also emphasize their willingness to take action if necessary, reiterating their optionality. Additionally, de Chazal points out that we should expect more information about the timing of the quantitative tightening tapering program.
Diverse Conditions and Concerns
Oil futures closed lower below $77 a barrel, while gold saw an increase, and the yield on the 10-year Treasury fell. According to Mark Arbeter, with the S&P 500, S&P 100 OEX, and Nasdaq-100 tracking QQQs currently at all-time highs, there is no chart resistance or overhead supply above current prices. This means that investors in these indices are currently sitting on profits. Arbeter describes these mega cap indices as platforms from which to continue advancing. However, he also expresses concerns about overbought technical conditions, divergent momentum, overbought breadth, and stretched sentiment indicators.