Last week was a complete roller coaster ride.
The week got off to a roaring start on the theory that the Federal Reserve would “pivot.”
That was a term to indicate that the Fed would slow down raising rates as the economy was slowing down.
With the market below the June lows, and all the cash on the sidelines, we were off to the races for Monday and Tuesday.
The problem was that the assumption had little or no reality.
By the end of the week, most gain was gone as the employment numbers came in, displaying little weakness.
Moreover, several of the Fed governors reiterated their stance that rates need to go up and that next month would provide another three quarter of a point increase in the Fed Funds rate.
It appears now almost certain that the Fed Funds rate will end the year between 4 and 4.5% as the Fed is determined to get inflation down to 2%.
It didn’t help that the employment numbers reflected a drop in the unemployment numbers and a rise in wages.
Essentially the rate of inflation is at 8% and the core rate is at 6.5%.
OPEC didn’t help anything last week with the announcement of cuts to production, sending West Texas Intermediate back to $90.
That won’t help inflation numbers either.
Food prices are really hitting middle-income families.
The inflation factor may significantly impact holiday spending.
This all comes with earnings season starting this week with the big financials.
It didn’t help last week that the chip stocks took a big hit after acknowledging that PC sales have slowed.
One of my favorite, Advanced Micro Devices, dropped 6% in one day.
As a value player, these are the times that can make you money.
The problem is always how far these stocks can drop.
Given my theory that the Fed cannot even spell soft landing, we probably will have a recession in 2023 and that will impact earnings. As bad as it seemed last week for the semiconductor industry, it could get worse, but these stocks should be on your radar.
It should also be acknowledged that stocks that make their money in the U.S. and not abroad could have an advantage as the dollar has become so strong making exporting a less profitable business.
There are more of these than you think and some pay a healthy dividend.
Suffice it to say that last week was an introduction to Halloween and it was in fact scary.
