{"id":197655,"date":"2023-10-13T12:00:00","date_gmt":"2023-10-13T16:00:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/?p=197655"},"modified":"2023-10-16T11:54:17","modified_gmt":"2023-10-16T15:54:17","slug":"michigan-wolverines-spoil-stock-rally-oct-13-2023","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/michigan-wolverines-spoil-stock-rally-oct-13-2023\/","title":{"rendered":"Michigan Wolverines Spoil Stock Rally: Oct. 13, 2023"},"content":{"rendered":"\n

Equity markets sprinted on the sound of the opening bell, on cue with risk-off sentiments in fixed-income. The plunge in bond yields is occurring as Israel is expected to launch a counter-offensive land attack in Gaza. At 10:00 am eastern time, however, equities lost steam following an awful Consumer Sentiment report out of the University of Michigan which missed estimates by a mile and then some. <\/p>\n\n\n\n

Sentiment Plunges<\/strong><\/h2>\n\n\n\n

Consumer sentiment plunged this month, a result of worsening personal finances amidst anticipations of intensifying inflation. Expectations for one-year business conditions also hurt results, with consumers\u2019 outlook for income opportunities declining. Indeed, the University of Michigan consumer sentiment gauge fell to 63, plunging from 68.1 in September and reaching the lowest level since May. The figure missed the consensus estimate of 67.2. The current conditions and expectations segments fell to 66.7 and 60.7 from 71.4 and 66 while missing estimates of 70.4 and 65.5. Perhaps most concerning was the rise in inflation expectations. Consumers dialed up their estimates for price pressures over the next year and the next five years from 3.2% and 2.8% to 3.8% and 3.0%.<\/p>\n\n\n\n

\"Consumer<\/figure>\n\n\n\n

While it\u2019s worth noting that this survey is notoriously sensitive to gasoline prices, consumer weakness is something we\u2019ve been expecting. Just this week we published a commentary<\/a> reflecting the worsening state of consumers amidst excess savings that are due to run out this month, the same month in which student loan repayments are due to resume. Indeed, higher prices, elevated financing costs and reduced credit availability are significant headwinds to consumer spending. While fiscal stimulus has been ramped up by the White House, industrial subsidies pale in comparison to the support households were getting through direct checks, enhanced unemployment benefits and the student loan holiday during the pandemic era.<\/p>\n\n\n\n

Consumer Weakness Reverses Rally<\/strong><\/h2>\n\n\n\n

Relief from softer bond yields is failing to offset equity investors\u2019 concerns about weakening consumers. Stocks were up 0.7% prior to this morning\u2019s report of declining consumer sentiment, but they are now mostly in the red. The only positive major index is the Dow Jones Industrial Average, which is up 0.1% while the Nasdaq Composite, Russell 2000 and S&P 500 indices are down 1.2%, 0.8% and 0.5%. Sectoral breadth has a defensive tilt, with risk-off utilities, consumer staples and health care higher by 0.1% to 0.9% alongside cyclical energy and financials which are up 1.9% and 0.6%, respectively. All other sectors are lower. Despite some sloppy auctions in the last few days, bonds are catching a bid, with yields on the 2- and 10-year Treasury maturities down 3 and 7 basis points (bps) to 5.05% and 4.63%. The dollar is also getting bought up, with global players seeking safe-havens during a time of global uncertainty. The Dollar Index is higher by 16 bps to 106.75 as the greenback appreciates against the euro, pound sterling, yuan and Aussie dollar while it loses value relative to the franc, yuan and Canadian dollar. Crude oil is rallying as Washington issues sanctions on Moscow due to the nation violating the G7\u2019s price lid of $60 a barrel. The price maximum was implemented to provide the globe with sufficient energy supplies while limiting Moscow\u2019s revenue capabilities. A similar action is expected to be issued against Tehran for its role in supporting Hamas\u2019 attack on Israel. WTI crude oil is up 3.77% or $3.15 to $86.62 per barrel on the news.<\/p>\n\n\n\n

Big Banks Benefit from Higher Interest Rates<\/strong><\/h2>\n\n\n\n

The following three large banks posted better-than-expected third-quarter results but also reported a concerning uptick in loan defaults and higher consumer debt levels.<\/p>\n\n\n\n