Stock bulls seem comfortable on the sidelines for now as they digest incoming Q3 earnings and a steady stream of key economic data.

JP Morgan yesterday kicked off the earnings season in earnest with better-than- expected results. A larger-than-expected release of credit reserves and strong performance in the firm's investment banking division helped the firm beat estimates for the recent quarter. BlackRock, the world's largest asset manager, also topped analyst estimates.

The big surprise was Delta which delivered its first quarterly profit since the pandemic began. However, Delta also warned that rising fuel costs are expected to ding profits next quarter and perhaps into the future.

Energy costs influence consumer price index

Rising fuel and energy costs are also hitting consumers with the Consumer Price Index rising a bit more than expected, led by energy prices climbing +1.3%, gasoline up +1.2%, and food gaining nearly +1% in September. Stripping out food and energy, the so-called core inflation rate was flat with August at +4% year-over-year. Gasoline, oil, and energy prices have continued to accelerate into October so most expect inflation will also continue to trend higher.

That means not just higher fuel and energy costs for consumers, but also higher production and transportation costs for companies, which in turn could translate to higher prices for consumer goods.

Some worry that could also mean sooner-than-predicted rate hikes from the U.S. Federal Reserve. The central bank has indicated lift-off in mid to late-2022 but an acceleration in inflation could pull forward the timeline.

Supply chain

We can't talk about inflation without also mentioning supply chain dislocations as that's where another large portion of the problem lies. The Biden administration, together with some of America's biggest companies and busy West Coast ports yesterday announced a plan to help jump start the country's backed-up ports.

An agreement with the International Longshore and Warehouse Union will allow the Port of Los Angeles to begin operating 24/7, which neighboring Long Beach Port began doing last month. Meanwhile, FedEx, UPS, Walmart, and Home Depot are among a growing number of companies that are committing to also expand off-hours operations to help clear the overflowing ports.

The two ports, which account for approximately 40% of all shipping containers entering the U.S., are currently experiencing a massive backlog of ships waiting to dock with already unloaded goods clogging the ports. This of course has had a domino effect across the U.S. economy with raw materials as well as finished consumer goods trapped in transit causing not just a shortage of those items, but also driving up shipping costs as there aren't enough containers, dock equipment, ships, truckers, and air freight capacity to handle the accumulating backlog.

Earnings and data

Today, key data includes the Producer Price Index and the Energy Information Administration's inventory reports for natural gas and petroleum.

Overnight tonight, China releases Consumer and Producer inflation data which could impact markets tomorrow morning. Also, be aware of a big data dump from China overnight on Sunday that will include GDP, Industrial Production, and Retail Sales.

On the earnings front, big banks are again in the spotlight with Bank of America, Citigroup, Morgan Stanley, U.S. Bancorp, and Wells Fargo all reporting before markets open. Other earnings include Alcoa Domino's Pizza, and Walgreens.


S&P 500 technical analysis

SP500 started to build momentum. The rally is supported by seasonal tendencies and cycles. However, the price is still under daily MA50. To consider longs we have to see SP500 building the base above MA50. In that case, bulls will target at least 4600. We have a strong accumulation in SP500. So, there is a chance to see this scenario.

The range 4200 - 4250 is a massive support. A breakdown below it is very bearish development.

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