'Risk Management' - continues a topic discussed among money managers. In my view the time to worry about that was around 18 months ago during the peak of 'buyback mania' and the artificial extension of the S&P then, which did persist in dominating the leadership (and illusion of greater strength vs. reality for the broad market) over the entire time including up to now.

Freepik

Companies have run-out of cost-trimming methods, the war is primed to rage further as the Hamas terrorists are pried-out of Gaza hideouts (with prayers to the IDF success in accomplishing their plans), and the main variable will be if Hezbollah and/or Iran, and/or Syria, enter the war. Then the U.S. Forces will have more to deal with than being a 'backup' and intelligence source for Israel (and sure, we'd not be surprised if Delta Forces or Seal Teams) are flown to U.S.S. Gerald Ford (which routinely carries just a nominal Marine Force).

Of course Israel must crush them, unless Hamas 'sues for peace' or releases all hostages forthwith, without condition. Otherwise things will be very bloody. I dread where this is going, but it's Hamas (and Iran) that initiated this. It's sad for civilians, but Hamas knew a massacre would evoke disgust and revenge.

I know Hamas 'tore a hole' in concepts of a terrorist organization changing its DNA, with their massacre on the weekend. Perhaps they tore a hole in Saudi Arabia's flirtation with a joint Israeli/Saudi security deal too. And perhaps that is exactly what Tehran ordered them to do, realizing Israel would retaliate as they are (and more), given the depraved gravity of Hamas inhumane injustice.

The President has mentioned Iran and warned them to be 'careful'. Dispatch of a 2nd Carrier Battlegroup to support USS Ford should amplify the concern. If you hear B2 bombers being deployed, you know what's coming. They're the platform able to launch the enormous bunker-busters able to penetrate buried military or nuclear facilities. The Arab and Persian world need to reconsider a Jihad Friday, unless they're maniacal or suicidal. (I guess this is on my mind.)

As to the hostages, it's unclear if the US will attempt a rescue operation. So, our POTUS was 'reasonably' strong in his words to the Nation, he didn't say something of the nature of the past, such as: "if you harm even one hair on the head of one American, we'll hunt you down to the ends of the Earth, and never quit". At least not ... yet.

For now, the dynamics remain fluid, and the US Navy presence should, if the adversaries are sane (and that's generally debatable as all are savage), serve to deter significant moves by Iran and Syria. By the way yesterday I got upset with Harvard University, for their meek response to a 30 Organizations letter proclaiming not just support for Palestinians, but blaming Israel for this.

I am still upset about the meek 2nd Letter from Harvard's President, however at the same time she didn't say, so I note: 'all' of the 30 were Muslim Groups on campus, generally not excessively 'woke' student groups one thinks of. So it does show that foreign students from Africa, Asia and the Middle East that are members of various Muslim social or support groups, lean pro-terrorist or at least anti-Israel. I believe others must take note, to effectively counter this.

Market 'X'-ray: 

The Fed doesn't quite want to pivot to 'ease', but recognizes the risks of pushing too hard now, especially with a Middle East war unfolding. Dispatch of fighter jets and 2nd Aircraft Carrier Battle Group paints a picture.

At the same time the Fed's move was and is viewed by voting members as a 'sufficient' series of 'higher for longer'. Data suggests slight disinflation, aside the PPI (hence why the initial reaction was favorable), with CPI on-tap now.

At Press-time: 

UAW walked out of a meeting with Ford officials and called a strike at Ford's major truck plant in Kentucky, largest in the world I think.

A lot of Fed members have talked of financial conditions, implying they have to acknowledge what they did 'to' Housing, not 'for' Housing or homeowners.

The Fed Minutes did not inspire concern, and the S&P is trading at the lower end of a zone where some suspect 'friction'. You could say that the market's ability to absorb the higher PPI, settle-back and rally anew, evidence a likely tailwind not headwind, which the S&P had been dealing with.

Hence my S&P comment the other day that it looked pretty decent, given the backdrop, as if it wants to achieve new highs, feasible by improved breadth, not mega-cap valuations. Investors are not excited, but I continue to believe it is basically 'early' late year oscillating and gradual accumulation for next year. Of course besides 'buying when there's blood in the Streets' literally prevails, and sadly so, doesn't mean a hot major Middle East war wouldn't impact the stock market. 

CPI holds the capacity to shuffle things again, but I suspect not so much. At the same time the FOMC Minutes pretty much take another rate hike off the table, at least for November's meeting. With the focus on 'regional war' that's going to take significant 'bundled' appropriations by Congress, including most like funding for Taiwan 'and' Ukraine in the same bill, to likely ensure passage.

If CPI is below 4%, you might see something like today's PPI response. Core consensus is around 4.1-4.2, but if we see a number in the 3's, well then you'll again have eyes 'off' the Fed and S&P can work its way over 4400. But that's a debate too, because if the war expands, Oil will rally again, and you know. I will point out that Consumer Staples and Utilities came down today, which is a detail I'm not focused on, but the Fed will see this as real unfolding consumer stress that sort of offsets infrastructure spending and so on.

Bottom-line: 

Super behavior by S&P and market breadth, absorbing the PPI increase, and in-the-face of a probable increased in CPI in the morning.

As I noted recently, S&P acts like this Fall wants to print a record high rather than crumble into oblivion with the majority of small stocks, seeking recovery not pummeling. The bears are not ready for record highs, and of course that would have to presume avoiding a wider Middle East war...and no surprises of a huge nature, such as if Russia takes advantage of Ukraine during what for a lot of Government and Congress, is an understandable focus shift to Israel.

I've tried, but at a loss of words to simplify the global and market situation. So far I have not capsulized it by saying preamble to World War 3, but closer.

More By This Author: