Tuesday Market Outlook: October 10, 2023

[Image] Tuesday Market Outlook: October 10, 2023 Good morning, traders! Following several days of being hyper-focused on the September Jobs Report, it’s time to move on and look forward to the week ahead. After all, new catalysts are piling up faster than the dirty clothes on my son’s bedroom floor. And let’s not forget… It’s Tuesday, so that means it’s time for my weekly market outlook. Let’s break it down… Bad News is Good News? If you trade for long enough, you’ll notice that the stock market has a strange habit… Sometimes, it keeps stubbornly heading higher, even when surrounded by negative news or economic concerns. It's as if the market puts on a blindfold, ignoring potential risks and issues that lurk in the economy, like increasing inflation or geopolitical tensions. In other words — it thinks bad news is good news. Now, as I’ve mentioned a lot recently, I think the market is surging following the jobs report due to the easing of uncertainty. However, ignoring the broader issues doesn’t make them disappear… Imagine not doing your homework for a week and pretending everything is okay — eventually, you'll have to face the consequences. Similarly, if the market disregards the "bad news" for too long — there could be a sudden, harsh correction where stock prices crater abruptly. This is why we’ve gotta stay disciplined in this market… Be cognizant of the big picture to ensure you’re not caught off guard by a sudden pattern disruption. Interest Rates and the Fed’s Role Now, let's shift our focus toward interest rates, which are essentially the cost of borrowing money. The Federal Reserve, or “the Fed,” adjusts these rates to manage the country's economic stability. And even though the Fed has hiked rates 11 times (!!) in the past two years, the financial world is still so accustomed to low interest rates that traders are still adjusting to this new macroeconomic reality. Now, there’s speculation about whether the Fed will stop increasing rates due to the conflict occurring between Israel and Palestine. NOTE: Geopolitical conflicts often have a significant impact on global financial decisions, influencing everything from imports and exports to institutional investment strategies. The Fed might decide to pause any changes to interest rates in light of the current geopolitical situation. This potentially dovish turn in monetary policy might create ripples throughout the financial markets, affecting various sectors and positions differently. That said, there are no guarantees that the Fed will shift policy. This is pure speculation on the part of traders. But the sentiment could majorly affect stock prices. Trade accordingly. The Wild Ride of Oil Prices Next, we need to talk about oil prices… Over the past three weeks, barrel prices took a downward dive due to anticipation that Saudi Arabia might enhance its diplomatic ties with the U.S. and Israel. WTI crude tanked (excuse the pun) from $93 to $82… However, geopolitical conditions are continually shifting, and now, this expected easing of tensions might not pan out as initially thought. In response, WTI crude blasted off of its lows, surging 3.5% yesterday, back up to $85. SPOILER ALERT: It goes without saying that oil prices are extremely sensitive to global events and diplomatic relations. And this is exactly why I watch oil prices and the energy sector so closely. As these big-picture macro scenarios evolve, we could witness a complete reshaping of the oil price trajectory. Understanding the interlinking of international relations and oil prices provides us with important data on the market’s potential directions and helps us anticipate shifts in energy-related stocks and sectors. The Upcoming CPI Report and Earnings Season Lastly, let’s discuss the upcoming Consumer Price Index (CPI) report and the big earnings season. The CPI is a metric that examines the average price change paid by consumers for goods and services over time. It’s a crucial indicator of the health and direction of our economy that can influence the FED's decisions on interest rates. A rising CPI indicates inflation, meaning our money doesn’t go as far as it used to … while a falling CPI indicates deflation, which would mean the Fed’s rate hikes have been working. Moreover, as we step into the earnings season, companies will be revealing their financial performance, providing insights into their profitability and stability. Particularly, the spotlight will be on the banking sector, which has faced widespread challenges over the past year. But the possibility of rates being higher for longer could actually benefit banks… Banks hand out various types of loans, and the interest from these loans gets more profitable as rates increase. All in all, how bank stocks move can be indicative of wider market trends, potentially providing clues about the overall market trajectory in the coming weeks and months. Closing Thoughts There’s a good reason I write these Tuesday Market Outlooks… Whether we're talking about geopolitical events, economic indicators, or corporate performance — each element intertwines to paint the big picture of the market’s performance and future outlook. Understanding the big picture and applying that knowledge to your strategy is how you can trade like a Wall Street pro. I want you to engage, ponder, and explore these topics further on your own this week. And, as always… Stay Street Smart, Jeff Zananiri P.S. My overnight trade idea has already been delivered to Burn Notice Members, but the next one could be even bigger! 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