Stocks rally on retail surprise and earnings, sentiment lags, king goldman, oil rallies, gold drops

US stocks are rising after better-than-expected retail sales data, optimism that the risks from Evergrande’s defaults will be contained, and after the first week of earnings season mostly impressed.

Retail Sales

Wall Street was expecting a slowdown in spending, but it turns out the US consumer is not to be messed with. Back-to-back months of better-than-expected retail sales data shows the consumer looks strong heading into the holiday season. Everyone was expecting a dip in auto sales as the automakers show a drop in car sales, but that did not happen in this report.

Retail sales might moderate next month, but early holiday is happening and Americans seem poised to spend big this holiday season. With supply chain issues nudging people to shop early and with Chanukah starting late November, retail sales should remain robust going into year end.

The volatile Empire State index posted a sharper drop in October. Business activity is still healthy, but widespread price increases still show no signs of easing. The economy is still strong and the outlook for manufacturing remains upbeat.

Consumer sentiment

The University of Michigan consumer sentiment report showed conditions are unfavorable on supply chain issues, a messy labor market recovery, and the inability to get things done in Washington DC. The headline sentiment came in at 71.4, lower than the estimate of 73.1 and prior reading of 72.8. Inflation expects diverged a little as 1-year expectations rose to 4.8%, while 5-10year expectations dipped to 2.8%.

Goldman

Goldman Sachs is the winner of the first week of earnings season. Goldman just leaped over Morgan Stanley in equity trading revenue, and it was across the board beats that had Wall Street buzzing. Goldman’s blew away all the consensus estimates. Equity sales and trading revenue grew by $3.1 billion, much higher than the $2.21 billion estimate. Investment banking strengthened by $3.55 billion, well above the $2.85 billion estimate. Deal making impressed at $1.65 billion, a beat of the analysts’ consensus estimate of $1.22 billion. Profit soared by 60% in the third quarter which is why Goldman shares shattered the $400 ceiling.

Oil

Crude prices are rallying after another round of strong earnings and economic data suggests the economy can still handle the current surge in energy prices. The oil market deficit will only get wider as global stockpiles remain at low levels, unexpected demand comes from colder weather, and on surging jet fuel demand as the US opens up international travel.

It will take a trifecta of events to derail this oil price rally: OPEC+ unexpectedly boosts output, warm weather hits the northern hemisphere, and if the Biden administration taps the strategic petroleum reserves.

Gold

Gold was unable to hold onto the $1800 level after a better-than-expected retail sales report and strong round of earnings sent US Treasury yields higher, denting appeal to non-interest-bearing assets. Gold was ripe for profit-taking, but the downward move could extend if Wall Street continues to pump up equities. Gold needs to see some safe-haven flows and that might not happen as much of this week’s news painted an upbeat picture of the economy.

Gold bulls still need to be patient. Gold appears poised to consolidate here, but the start of a new bullish trend is around the corner once the global economic recovery gets on track and the dollar loses its dominance.

Bitcoin

Bitcoin prices are surging in anticipation of a potential SEC approval over the first US Bitcoin futures exchange-traded fund. Since 2013, the crypto industry has been trying to get an ETF done and now it seems like it will finally happen on Monday. An SEC Bitcoin ETF approval is a watershed moment for the crypto industry as this could be the key driver for getting the next wave of crypto investors.

A successful Bitcoin ETF launch next week could easily support Bitcoin's run to record territory. Bitcoin mania has been brewing on social media platforms over the past couple weeks and while some traders may look to fade the SEC decision, it looks like many are adopting the long-term hold approach.

If ProShares and Invesco Ltd. have their respective Bitcoin ETF applications get approved next week and initial trading volumes are strong, Bitcoin could have enough momentum to target the $74,500 region. If the global energy crisis fears ease in the coming months, Bitcoin could have a path towards $85,000.

Despite all the excitement, Bitcoin still has regulatory hurdles and could see scrutiny over the amount of energy consumed as natural gas, coal, and crude prices skyrocket. Bitcoin is always vulnerable to a 20% plunge and traders should anticipate heightened volatile for the rest of the year.