Raymond Kanyo, CFA
MarketBites: Inflation Reading, Earnings In Driver Seat
Portfolio Manager Commentary:
Stocks started off the week with a big selloff, the dollar climbed, and the 10-year treasury remained below 3%. Mega-cap tech stocks such as Tesla and Apple led the selloff.
This week, all eyes will be on Wednesday's inflation data. If inflation comes in higher than anticipated, the market will most likely sell-off due to the expectation of higher interest rates. I'm not sure if a below-expectation inflation read would do the opposite. In my opinion, stocks need to show fundamental strength to move higher.
It is a good thing that Q3 earnings season is about to start. Expect a lot of volatility in the coming weeks, as earnings will surely give investors some insight into how the economy is doing and how inflation is impacting businesses and consumers alike.
The dollar continued to climb against a basket of currencies. For the first time in 20 years, the greenback is trading at parity with the euro. This will likely put even more pressure on companies that sell overseas, as a strong dollar makes US goods less competitive abroad.
Oil declined amid a renewed increase in China's Covid-19 cases.
Chart of the Day:
An interesting chart from Bloomberg today shows that small-cap stocks are very cheap relative to large-cap stocks. The ratio is at a 20-year low. The small-cap index is down 32% from peak to trough. Historically, small-caps have declined 50% during recessions.
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