Morning Notes — Narrative

The bearish narrative that includes 1) increased inflation expectations; 2) higher energy costs; 3) higher bond yields; 4) higher terminal rates; 5) expected cuts to FY’23 earnings and; 6) geopolitical shocks have been in place since mid-January and is beginning to feel a bit tired in the face of cooler than expected October CPI/PPI prints.  A bullish narrative that includes: 1) disinflation; 2) dovish Fed comments; 3) impending Fed pause; 4) China regulatory pivots; 5) Russia’s military setbacks and; 6) early October-end earnings beats are current developments that should last until challenged. The most significant challenge on the calendar doesn’t arrive until the November CPI print due on December 13.

A good start to the October-end earnings season with shares of WMT and HD both higher after reporting. Other earnings-driven outperformers include ARMK, ENR, SE and TME. Retailers AAP and LVLU are scheduled to report after the close.

WMT’s beat and raise (announced $20B buyback) plus HD’s beat on much better comps gets the October-end earnings season off to a strong start.  The combination starts a second leg of short covering and some early performance chasing. Technical resistance at ~4100 is a major hurdle (declining 200-day moving average at ~4076 is the first test) but a relatively quiet catalyst calendar over the next month will likely lead to trend continuation and keep risk skewed to the upside.