Rising DJ transport index a good sign for stocks

Heading back to ATH?

Before we start: we posted a Twitter thread yesterday on the subject of Credit Impulses and what they might imply for various markets. You can find it here:

Chart of the Day

It was a good day for global stock markets yesterday as several companies, notably a few major banks, posted earnings reports that beat analyst expectations. There are still fears about higher inflation and impending interest rate hikes that could rattle the market, but signs of stronger earnings suggest those aren’t preventing companies from doing well for now. One index to watch is the Dow Jones Transportation Average. Subscribers to the “Dow Theory” believe that a new high in that index signifies a good outlook for the broader market. The DJTA hasn’t reached a new high just yet, but it has outperformed the braoder market in the past couple of weeks and could get there soon.

Macro

US producer price inflation rose to 8.6% in September, while core PPI inflation increased to 6.8% - for the latter, that was lower than expected, and potentially a sign we will soon see the peak in this guage.

US initial jobless claims fell below 300,000 last week - to 293,000, while continuing claims increased to 2.6mn in the week before.

The weekly EIA report showed crude inventories rose by a surprisingly strong 6.1 mn barrels last week.

That was due to a solid rebound in production.

Markets

Despite higher inventories, oil prices rose again yesterday. Both major grades are now comfortably above $80.

It wasn’t just the US stock indices doing well.

It was a mixed performance in terms of the overall gain, with both tech stocks and cyclical sectors like industrials and materials doing well - a good sign in terms of market breadth.

Equities may also have benefitted from the drop back in bond yields across the major markets.

Finally, it looks like Bitcoin and Ethereum could soon reach new all time highs.

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