In an average year, the only way for the stock market would be up now

The U.S. Treasury disclosed its projected borrowing for Q3 ($776 billion) and Q4 ($816 billion) at 3:00 p.m. on Monday. The reaction in the bond market was subdued, indicating that a yield of around 5.00% might be sufficient to entice investors. This comes despite the Treasury's anticipation of requiring $1.6 trillion in the upcoming half year.

In Q3, the Treasury acquired $1.010 trillion in net marketable debt from private sources. Consequently, the public's holding of U.S. Treasury marketable securities surged to an unprecedented $25.7 trillion (see chart). This metric has climbed by $9 trillion since early 2020, before the pandemic's onset.

It's now five times what it was during the Great Financial Crisis (GFC) and is projected to reach an all-time high of $27.3 trillion in the forthcoming six months. In essence, the fiscal approach appears unchecked.

Three months of decline may be enough

The S&P 500 declined 10.6 since reaching its top on July 27, 2023.

The NASDAQ declined slightly more - 11.2 % since reaching the top on July 19, 2023. One wall of worry is that mega-cap tech stocks have led the selloffs. The Magnificent 7 stocks have led the market all year and show signs of breaking down. That brings some flashing red warning signs.

Here is where the Magnificent 7 were max. down from their highs.

• Tesla -30%

• Nvidia -18%

• Amazon -17%

• Apple -15%

• Google -13%

• Meta -12%

• Microsoft -9%

Seasonality

Is this a chance to buy, or will there be a further decline? One notable thing about the end of October is that it's the cut-off for mutual funds' tax loss harvesting.

Ryan Detrick highlights that, historically, October 27 has been the most challenging day for the stock market. Records since 1950 indicate that the S&P 500 typically hits its lowest point on October 27.

The bears rightfully persist.

The bears persist in arguing that this isn't an authentic bull market, emphasizing the tepidness of the rally. They often cite the performance of the S&P 500 equal weight index and the Russel 2000 index, a proxy for small-caps, that has posted fresh yearly lows. The current rally lags behind past bull markets in this regard. This is true.

Recently, the weakness has also spilled over to several technology sectors, among them semiconductors. Several companies, including ON Semi, Lattice, etc., reduced the forecasts for the next quarter, citing broad-based weakness in markets such as Asia and Europe.

Apart from mortgage rates, the surge in interest rates has been most evident in the rates that small businesses face. The accompanying chart below reveals that small businesses are now contending with 10% interest rates, a peak not seen since 2001. Such a shift can hamper recruitment and business growth.

This chart aptly demonstrates the implications of a spike in businesses' capital costs. If these rates persist or further increase, it raises concerns for future economic growth and expansion. Something may break!

The consumer comes to the rescue.

Economic growth in the U.S. saw a surge in the third quarter. The US GDP climbed from 2.1% in Q2 to 4.9% in Q3. This 4.9% figure is the most significant since the close of 2021.

Excluding the tumultuous 2020-2021 COVID period, it's the best performance in nearly a decade. A detailed component breakdown follows.

Those claiming that consumers are out of funds can take a step back. People have jobs and are earning, leading them to spend. It's as straightforward as that, further dispelling ongoing recession speculations.

On Tuesday last week, we received a retail sales figure that surpassed expectations.

• Retail sales at 0.7% compared to the anticipated 0.3%

• Retail sales (minus autos) at 0.6% against the projected 0.2%

It's become repetitive hearing claims of consumers being cash-strapped and a looming recession. Despite predictions of halting expenditure, it remains robust.

Remarkably, retail sales have risen for six straight months now, a trend not seen since early 2019. An interesting insight reveals that individuals 65 and older spearhead the spending spree.

The older generation's spending habits might be the hidden ace for the economy and one reason why the economy is so resilient despite surging interest rates. Boomers are not affected by rising rates - at least not a lot.

They mostly spend accumulated wealth, have little debt, and are less affected by rising credit rates.

A big earnings week ahead

The breakdown by day is as follows:

• Monday, 10/30: Companies like SoFi, HSBC, McDonald's, Public Storage, Lattice, Chegg, Pinterest, and Tenet Health, among others, are scheduled to report their earnings.

• Tuesday, 10/31: The lineup includes notable names such as AMD, Pfizer, Marathon, CAT (Caterpillar), Santander, Malibu, and Amgen, to name a few.

• Wednesday, 11/01: PayPal, Airbnb, Qualcomm, Etsy, Humana, Roku, and Brookfield are some of the recognizable brands set to release their earnings reports.

• Thursday, 11/02: The day is marked by prominent companies like Apple, Lilly, Shopify, Starbucks, Palantir, Coinbase, Marriott, and Nikola, among others.

• Friday, 11/03: The week wraps up with reports from brands like CardinalHealth, Cboe, Arbor, Telus, Enbridge, Cinemark, and Dominion Energy, along with several others.

After this week, over 50 percent of the S&P 500 companies with a quarter ending September 30 will have reported earnings. We will then have a clear picture of whether the earnings recession has indeed come to an end.

Whether we will have a clear picture of the direction of interest rates and the FED remains to be seen. They will try to get the "higher for longer" message across again. Whether the market believes it remains to be seen.

The 10-year U.S. Treasury bond yield continued to stabilize just below 5.00% on Monday, as it has been doing since October 26. Notwithstanding the worsening conflict in the Middle East, the price of oil fell by a couple of bucks.

Yields on long bonds may have finally found support. That said, in an average year, the only way for the stock market would be up now. But 2023 is a bit different from usual.