Bloomberg: Shock rally hits markets

11 November 2022 41
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Source: Bloomberg

Author: Lu Wang

Article: Based on the materials of the original article

Publication date: November 11, 2022, 02:48 (GMT+5)

 

 

 

After yesterday's U.S. consumer price index data release, the S&P 500 broke through its October peak, resuming its recovery attempt after hitting a 2022 bottom a month ago. 

The index has also recovered key trend lines, such as the past 50-day and 100-day price averages. 

 

However, for Chris Seniak, chief investment strategist at Wolfe Research, it is still far too early at this point to tell if things are clear. The level he’s watching is the S&P 500’s 200-day average, a threshold that snuffed out the market’s August. That trendline now sits near the level of 4,088, about 3% above the index’s close.   

 

“We wouldn’t be surprised to see some near-term follow through,” said Senyek. “However, this morning’s report does not make us change our views that the FOMC will ultimately hike the fed funds rate to between 5%-6% and that a demand-driven recession will hit next year.”

 

Senyek's skepticism was widespread among investors. Hedge funds reduced their equity holdings to their lowest levels since 2017 ahead of the midterm elections and this week's inflation report, according to data compiled by prime broker of JPMorgan Chase & Co. ETF investors withdrew $2 billion worth of stocks in November, which could be the first monthly outflow since April, data compiled by Bloomberg show.  

 

While short sellers reaped the benefits during the bear market, any such bets on Thursday had unpleasant consequences. Goldman Sachs Group Inc.'s basket of the shortest stocks rose 11%, breaking an eight-day slump and dealing the bears their strongest blow since March 2020. 

 

Bryce Doty, senior vice president at Sit Investment Associates, attributes Thursday’s rally to short covering.  

 

“Without a clear sign from the Fed that rate increases are slowing, market reaction seems to be getting ahead of itself,” he said. 

 

Forecast: The decline in the S&P500 will continue.

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