John and Wade here, and welcome back to Trading Opportunities.

Last week, we kicked off this e-letter after months of reworking and reevaluating what would help you best in both torrid and mild market conditions.

If you missed the inaugural letter, here’s what you can expect every week:

On Mondays, we’ll examine what we see for the week ahead — and where the best trading opportunities may arise.

Then on Fridays, we’ll share a bit about the plays that our members are making in our trading research service, Strategic Trader, and about how you can gain access to those recommendations.

So, here’s what we’re looking at today…

Choppy Markets for the Next Six Days

Traders started the day today a little jumpy again because the Fed chairman, Jerome Powell, said that the Fed was monitoring price inflation closely and would “adapt accordingly.”

This may not sound too bad, but for Fed-watchers, this is a big deal. The Fed has been mostly blowing off concerns about inflation, so this represents a subtle but important shift in the language being used to provide guidance for the market.

Of course, the issue is that any “adjustment” the Fed makes to address inflation would be to tighten monetary policy and/or raise interest rates. The market reaction was initially negative, but prices have moderated a bit, so we aren’t overly concerned about a big drop in the short term.

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For now, we are monitoring the 10-year Treasury Yield (TNX) for signs that traders may be pricing in a short-term move by the Fed. At this point it looks like we may still see some volatility, but investors are still relatively complacent. The 10-year yield is continuing to drop from its recent highs despite the news.

This all probably feels a little like a market with a split personality. Despite some concerning news about inflation, traders continue driving prices higher. This situation is sometimes referred to as “climbing the wall of worry,” and it happens when there are serious risk overhangs on the market (worry), but the underlying fundamentals (earnings and growth) are still positive.

Historically, the fundamentals tend to win the day and prices rise, but Powell’s comments increase the focus on the Fed’s meeting next week (Nov. 3), which means more back and forth over the next six trading days is likely.

Earnings Season in Full Swing

Unfortunately, it’s still a little too early to do a full earnings review, but the early reports inspire confidence. According to data compiled by Factset, the blended profit margins in the S&P 500 (includes companies that have reported as well as expected margins for those about to report) is 12.3%.

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The track record of the S&P 500 beating expectations like this is positive, and earnings beats have driven stock prices higher. So, this week, we’ll be watching to see if corporate America can keep the good news flowing. Here are the key reports we’ll be watching…

• Today: Facebook Inc. (NASDAQ:FB) and Kimberly-Clark Corp. (NYSE:KMB)
• Tomorrow: Microsoft Corp. (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG, NASDAQ:GOOGL), Visa Inc. (NYSE:V), United Parcel Service Inc. (NYSE:UPS), Advanced Micro Devices (NASDAQ:AMD)
• Wednesday: The Coca-Cola Co. (NYSE:KO), McDonald’s Corp. (NYSE:MCD)
• Thursday: Apple Inc. (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Starbucks Corp. (NASDAQ:SBUX), Caterpillar Inc. (NYSE:CAT)
• Friday: Exxon Mobil Corp. (NYSE:XOM), Chevron Corp. (NYSE:CVX)

Oil, Housing, and Interest Rates

According to a Reuters report earlier this morning, oil prices have reached multi-year highs due to tight supply. “Brent crude futures,” the report said, “gained $1.01, or 1.2%, to $86.54 a barrel by 11:19 a.m. EDT. The contract reached a session high of $86.70 a barrel, highest since October 2018.”

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This is, of course, a staggering statistic. As such, we’ll be keeping an eye on this space — and one question on our minds is this: Will higher gas prices reduce consumer spending in other sectors?

In addition, we’re also looking at the housing sector and interest rates. The housing sector getting a short-term reprieve as the TNX pulls back a bit, so there may be some opportunities incoming there.

In terms of interest rates, Wall Street seems not to be bothered by expectations the Fed will be raising interest rates sooner than expected next year… but we’ll see how that plays out.

We’ll be back with you on Friday.

Until then, if you have any questions, please contact your Customer Service team at feedback@investorplace.com.

Sincerely,

John Jagerson and Wade Hansen
Editors, Trading Opportunities

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