NEW YORK (Reuters) - Wall Street's main stock indexes rallied as much as 3% on Monday, catalyzed by better-than-expected Bank of America (NYSE:BAC) earnings, while traders debated whether recent wild swings signaled some sort of bottom was forming after new-bear market lows were reached last week.
On Thursday the benchmark S&P initially nosedived to its lowest since November 2020 after hotter-than-expected consumer Prices data reinforced expectations that the Federal Reserve's aggressive rate hike path would trigger a recession. But stocks staged an epic turnaround that day with traders guessing that a range of technical and positioning factors kicked in.
The S&P fell 2.4% on Friday, marking a 1.5% weekly decline.
MARKET REACTION: STOCKS: The Dow was up 1.68%, the S&P 500 was up 2.54% and the Nasdaq up 3.17%
COMMENTS:
JASON PALTROWITZ, DIRECTOR AND EXECUTIVE VICE PRESIDENT OF CORPORATE SERVICES, OTC MARKETS GROUP, NEW YORK
"It’s a combination of factors. Obviously, the positive BofA earnings as well as and others have caused positive movement – while EPS growth is lower than previous quarters, it’s better than expected. Additionally, Friday’s sell off was about uncertainty and not wanting to hold positions over the weekend. The start of the week has that money back in the market."
PETER TUZ, PRESIDENT, CHASE INVESTMENT COUNSEL, CHARLOTTESVILLE, VIRGINIA
“I was thinking that the bank earnings, especially Bank of America was really pretty optimistic, and that coupled with the abandonment of restrictive policies in England just seemed to be the fuel that got the market going this morning.”
“There were some pretty rough days last week... The choppiness and volatility that we are seeing is part of the bottoming process. The fourth quarter generally is pretty good for markets historically.”
“We have a lot of earnings to go. This week and next week are just crucial and full of earnings, but we will see what guidance is for the fourth quarter and as far as people can tell into next year.”
CHRIS MURPHY, CO-HEAD OF DERIVATIVES STRATEGY, SUSQUEHANNA INTERNATIONAL GROUP, BALA CYNWYD, PA
“I think this is more a sign of more volatility to come. I don’t think this is a sign of a bottom because we are not seeing real sustained long-term buyers come in.”
“Positioning is getting very much one-sided. The risk now is that if everyone is so bearish and if positioning is so light you get one of those bear market rallies.”
“Most of the flow that we are seeing just today is people reengaging hedges and shorts.”
“People are really trying to time these moves. When we get toward the bottom of a range or we sell off significantly, you can monetize your protection or puts and then re-engage them when we bounce like this."
“If this trend continues you are going to have to say when we get a pretty decent selloff, ‘hey I better sell some of my puts’ and when you do that it creates some buying power into the stock market. And if we rally you put them back on and it can introduce some downside pressure.”
PAUL NOLTE, PORTFOLIO MANAGER, KINGSVIEW INVESTMENT MANAGEMENT, CHICAGO:
"A lot it is revolving around Britain taking a complete walk-back in the policies they wanted to enact. We're seeing growth outperforming value today because of the drop in interest rates. That seems to be the daily MO for the market."
PHIL BLANCATO CEO OF CEO OF LADENBURG THALMANN ASSET MANAGEMENT
"This is the turnaround week every single year. If you look for the single best turnaround week for the year, it's always the second week of October. If you really want to be specific its around about October 14. We forget that seasonality matters to the market. The fourth quarter is on average the best quarter every single year and on average the turnaround week happens the second week of October. It's because of the post summer, post September malaise you look at when the markets see the greatest amount of income coming in post rebalancing at mutual fund at quarter end, it's money coming back into the market. Seasonality right now is playing into this."
"Secondly the information coming out of the banks are much better than anticipated. Even though there was a drop in earnings they're making significant income on their cash. So this recession is not a consumer-based recession. It's not a bank-based recession if you can even call it one. It's simply a cyclical slowdown. Those are the best because they generally take around 10 months to recover which is right where we are. Inflation is not slowing the economy down. If we get any kind of recession it's mild. For that reason, when you look at stocks trading now below their P/E averages, stocks are fairly valued again an offer a good opportunity."
"If you look at current P/Es and forward P/Es they're both trading below the last 10-year average. So stocks are now they're offering a good price. You're seeing earnings hold on so far. You have seasonality on your side, plus just seeing the data so far suggests the economy's doing just fine."
"Its a jagged edge because of the Fed and oil are still mysteries. Ultimately we end the year up higher, much closer to 4,000 than people realize, assuming we don't get an oil shock or a Fed shock."
SIDDHARTH SINGHAI, CHIEF INVESTMENT OFFICER, IRONHOLD CAPITAL, NEW YORK
"This seems to be a faux rally fueled by lower inflation expectations, I don't think the rally makes sense. Interest rate hikes are not getting discounted by the market."
THOMAS HAYES, MANAGING MEMBER, GREAT HILL CAPITAL, IN NEW YORK
"It is offsides positioning."
"Last week retail traders bought $19.9B of puts. 3:1 ratio to calls. Most extreme ever. Closest periods were all near major lows 2020, 2016, 2009, 2003. Everyone bought insurance after the house burned down. Those type of policies never pay out. There are no sellers left."