From mid-October to the end of the month, stocks embarked on a nearly 10%+ bear market rally. Since then, we've traded in a choppy manner due to a combination of bullish and bearish factors.
The FOMC meeting and jobs report were pretty bearish in that they didn't do anything to lift hopes of an imminent slowing or pause in the pace of hikes. They continue to indicate an economy that is slowing but is also expanding which means there is no need for the Federal Reserve to change its hawkish course. It's a mirror image of what we had for most of the last decade when asset prices were supported by Fed policy and low inflation and growth were sufficient for earnings growth but not enough to change Fed policy from its dovish settings.
The hawkish Fed and a decelerating economy are reasons to be bearish in the more intermediate term, but there are two bullish near-term impulses - rumors of China reopening and the upcoming midterm elections, where Republicans are expected to romp to a majority in both branches of Congress.
The election is likely 'baked in' to prices given that the polling has been pretty steady since mid-October showing increased odds of a 'red wave'. However, the China reopening news isn't priced into markets which are evident based on the big moves in energy, material, and Chinese stocks.
In terms of energy, it's estimated that China's economy operating below capacity is leading to about 2 million barrels per day of oil of decreased demand. This is a notable figure in a market that was dealing with a pretty tight equilibrium just a few months back. And, it's not a coincidence that this is the precise amount that OPEC+ decided to cut production by. Still, it's indisputably bullish for energy stocks if China is re-opening.
The same logic holds for material stocks as China is the world's largest consumer of commodities like copper, iron ore, and coal. These stocks have been sagging in the last couple of months due to a slowing, global economy and increased odds of a recession. However, stocks like Freeport McMoran
