Sometimes Wall Street makes sense. Other times, it doesn’t. The second was Thursday.

The big picture: Stocks rallied, despite a worse-than-expected inflation report that ensured the Fed’s relentless rate hikes would continue.

  • As we’ve written about all year, rate hikes have been the main driver behind the worst year, through Q3, for the stock market since 2002.
  • And the S&P 500 actually fell after the inflation report, opening down 2%. However, it boomed then, closed up 2.6%.

Context: Yes, stocks go up and down all the time. But the amount of swing from the opening tick was very unusual.

  • It was only the fifth time since 1993 that the S&P 500 opened down 2% only to close with a gain of more than 2%, data from the stock market research firm Bespoke Investment Group shows.
  • Stocks that benefit from continued inflation and rising interest rates, such as financials, oil drillers and chemical companies, were higher.

Between the lines: While the composition of the day’s winners could be interpreted to make sense, none of the traders we spoke to seem to see the reversal as fundamentally sound. They all think it was a classic bear market rally.

  • Bear market rallies are short, sharp increases that occur regularly, even with a broad market path lower.
  • You can still make a lot of money on a bear rally though, especially if you spot it early, skim it well and jump out before it rolls.
  • Steve Sosnick, chief strategist at Interactive Brokers, called Thursday’s move “an epic fake one,” adding that fear of missing out — or FOMO — remains a big force, as traders are dying to get in early on good market rally. .

The bottom line: Some traders we spoke to thought stocks could put together a decent little rally before the shadow of the next rate hike – due on November 2 – throws the market off again.

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