Oct 27 2022: Observations on US Financial Markets

By Jeffrey Cohen, President & Investment Advisor Representative
US Advanced Computing Infrastructure, Inc.

Good morning. Notice a few things in the market this morning (pre-market at 8am ET):

1. The US Dollar has fallen significantly over the past week, and the EUR/USD went back over parity (currently 1.0081). However, this morning the US Dollar is stronger. Up by 0.35%

2. Copper is back to $3.50 / oz and other industrially sensitive commodities are also higher. Crude oil WTI at $88.12 / bbl is up there, along with silver at 19.35 / oz.  This is not the sign of a global economy in trouble now. This demonstrates either market 'restraint' or 'strength' as companies acquire future supplies (which is possible pre-war with Russia), or that companies may be cutting costs, but not production in Q4 and into Q1 2023. 

3. US Riskfree interest rates have risen, and bonds have fallen. Bonds are down this morning, and are generally very weak compared to where they were even just a few months ago. Interest rates across the yield curve are at or above 4%. This is great for savers, who can earn 4% interest with just a little effort. However, this is not great for companies or organizations (like regional banks) that hold bonds to boost current income through bond interest payments. They are holding bonds that have been weakening for the past few months. There was even a crisis in the United Kingdom about this when pension funds used borrowings, or leverage, to hold more bonds than they could afford as they fell in value.

So, what does that mean for equities this morning? Europe is down a full percentage point, and Asia was down. The exception in Asia is the Hang Seng, which ended up almost 1%. The Hang Seng fell dramatically earlier this week, so a technical reversal or 'bounce' can be expected. It was up almost 4% at one point last night.

US Equity futures are mixed. The Nasdaq Composite 100 ^IXIC is set to open lower by 0.6%. This is NOT surprising as tech stocks reported earnings yesterday and after hours and had issues. The Metaverse company $META, formerly known as Facebook $FB, traded significantly lower last night after hours (down 20% at one point as we watched) on top of a 6% drop during the trading day.

Other stocks may be falling in sympathy, but it is hard to tell. The moves are too slight this morning.

What are we watching today?

We have two personal holdings that hopefully will be profitable positions. There isn't much to do on those but to watch and either buy or sell. No need to discuss them.

We ran our model last night, and will save that update for another BLOG post.

Good luck to all.