Why Did The Market Surge In October? Here Is The U.S. Treasury's Explanation

Tyler Durden's picture

We have heard many explanations for the torrid market rally since last September, ranging from the rational - short squeeze - to the generic - "bad news is good news under central planning" to the deranged - "ignore the news, the U.S. economy is actually stronger and China is recovering." And now, courtesy of the U.S. Treasury's Office of Financial Research, here is the official explanation from the government itself.

Shift in Monetary Policy Expectations Supports Risk Assets


Risk assets such as equities, corporate bonds, and emerging market currencies appreciated notably in October, recovering somewhat from the sharp losses in recent months. The catalyst for the rally appeared to be weaker U.S. labor market data, which delayed the expected start of monetary tightening by the Federal Reserve. Extraordinarily accommodative monetary policy has supported risk asset prices since the global financial crisis and this month’s market reaction suggests that these prices may still be contingent on accommodative policy. It remains to be seen whether current U.S. asset price ranges can be sustained once the Federal Reserve begins to raise interest rates, broadly expected to occur between December and June.


Global risk assets advanced on expectations for continued or additional accommodative policy among central banks in advanced economies


U.S. equities have rebounded strongly in October, although fundamentals remain weak. The S&P 500 index has rallied since the start of October and is up 10 percent from its August low (Figure 3). As with the broader rally in risk assets, this rebound has been attributed to the delay in an expected Federal Reserve rate hike. The rebound has occurred in the face of weaker U.S. equity fundamentals, such as the slowdown in global growth, negative effects of a stronger U.S. dollar on earnings, and continued weakness in the energy sector. For the third quarter, analysts continue to expect negative revenues and earnings for energy stocks, with modestly positive growth for non-energy S&P 500 stocks. Emerging market assets have rebounded, following months of deterioration.


Emerging market currencies have rallied since the start of October (Figure 4), led by a 5 percent to 8 percent appreciation in commodity-sensitive currencies. Emerging market equities and credit have alsoadvanced. Despite the rebound in emerging market assets, some of the recent gains also represent a technical recovery driven by covering of short positions and moderation of excessively bearish sentiment. Overall, emerging market economic fundamentals remain very weak. In its latest World Economic Outlook, the International Monetary Fund (IMF) downgraded its forecast for emerging market growth.

In summary: central banks and a "covering of short positions" better known as the fundamentals of the New Paranormal.

Don't like it? Then the following from BofA will make your blood boil:

Global weakness is OK for US markets as long as the Fed refrains from hiking rates, and vice versa it would be OK from a markets perspective for the Fed to begin hiking rates if global weakness diminishes (but not OK if US data rebounds in isolation). Hence risk assets have rallied for three weeks prompted by the turn to weaker US data that began with the weak September jobs report, as the Fed’s rate decision is understood to be completely data dependent. However, clearly for the market rally to be sustained it would be helpful if next week’s FOMC statement tilted dovish by acknowledging this turn to weaker US data.

It would be easier if they just asked the Fed to admit it will only hike if the S&P500 is at or above 2100, the VIX is below 14, and it can only do so on an uptick.

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JustObserving's picture

True reason was the PPT was buying futures on stocks to levitate the stock market

Truth is treason in an empire of lies.


Everything will be great as long as it's bad enough. 

highandwired's picture

More bullshit from our fearless LEADERS


Edit:  I'm sick and tired of bullshit...just let the fucking reset happen already


FL_Conservative's picture

TPTB will not allow the reset until you've been broken to the point that you're willing to allow them to control everything.

Hitlery_4_Dictator's picture

Ding Ding Ding - folks we have ourselves a winner here. 

NidStyles's picture

They needed the political capital to raise the debt limit again. 

Ghordius's picture

the problem with political capital is that you have to raise it before you spend it. otherwise it would be in the hands of the banking system, and created out of thin air

NidStyles's picture

Political capital isn't raised. It's a deduction from what is considered to be static gullibility. You can't defeat a people if they are not letting you know that they are war with you.



It's literally an abuse of European mentality, not something they need to build to use. 

Ghordius's picture

nope, I disagree. and the very fact that Draghi was proven right, so far, is evidence for that. btw, another thing that you can't do with political capital is export it, or lend it to someone else

of course the flag that is your avatar proudly proclaims that there is no such thing as political capital only physical, and yet... explain the world without it

and without resorting to the usual "mass illusions" metaphors. credit exists. it's a human thing, yes, intangible, and yet it permeates all what we do, and predates even money

knukles's picture

OK.  So the Treasury's explination is closer to ours that the rest of the worlds.

Now, just how bizarre is that?

NidStyles's picture

It doesn't matter if you disagree though. Political Capital is only used against European cultures. Everyone else is treated differently. Europeans do not have a very strong nationalistic streak, and strongly nationalistic cultures are collectively less gullible, because they have a common goal and direction. So your disagreement doesn't mean anything realistically. It just means you don't like the evidence or the truth. 


The Japanese are a prime example of this. The internationalists have never been able to infiltrate that society effectively at all. They are extremely Nationalistic as well. Only internationalists use Political Capital, and they know it's ineffective against highly nationalistic people. Which is why Germany and Japan were the "bad guys" during WW2, while Stalin was basically murdering tens of millions. They know they can't use that garbage once they lose access to the minds of a nation. This is why the US will always fail like every multi-cultural state before it. The "Civil War" was the defining point that lead to what the the US's fate would be. It was sealed in 1913. The idea of the US is dead.  

My Avatar is easy to find rapidly while scrolling because of the colors, and my use of it has nothing to do with any delusions otherwise.


Credit is an idea, and therfore only exists as such. That doesn't mean it exists in reality. The funny thing is that the people you are assuming I am associated with are not against credit, and they wrote rather extensively about it being a positive influence on society. 


stock market loser's picture
stock market loser (not verified) FL_Conservative Oct 27, 2015 11:26 AM

Wrong if the currency collapses people won't be able to eat. When that happens americans will grab their guns and rebel. The bankers better run for their private jets because it's hanging time!

Sudden Debt's picture

Imagine you are in a cage.

Outside the cage, there is a raging fire.

You've got one wooden stick that is 20 inches long and 1/10th of a  inch thick.

In the same cage, there is a lion who hasn't eaten for 2 weeks and who is affraid of fire.

The lion represents the Fed and you represent his next lunch.

You can only escape the cage through the door that is behind the lion and he swallowed the key that the guy before you was holding in his hand.

Behind the door, there's a reset button that will turn off the fire.

Now what do you do?

highandwired's picture

Well if I'm Ben Shalom, I burn the stick and say everything is awesome.  Merica, fuck yeah!

Government needs you to pay taxes's picture

Grab the lion's balls with one hand, and shove the other hand up the lion's ass to fetch that key!

Ghordius's picture

I guess you failed this test. harming lions is totally politically incorrect. little children will hate you for that

Crocodile's picture

Give the stick to the Lion and tell him to hit the button.  If he doesn't listen, then kill him.

ChargingHandle's picture

Wall street is la-la land. They create their own reality regardless of fundamentals. 

buzzsaw99's picture

sad really. the treasury only knows what goldman sachs tells it. they only do what goldman sachs tells them to do. in fact, the treasury is just another division of goldman sachs. that's why they sound like goldman sachs, because they are.

two hoots's picture


Very true:   Here is the proof, the members of the Treasury Borrowing Advisory





madbraz's picture

in summary, lew in bed with dudley - compliments of summers and rubin.

yogibear's picture


Funny you mention that.

Obama surrounds himself with gay and trans-genders.

Washington is a reflection of Hollywood. 

Haka Matohi's picture
Haka Matohi (not verified) yogibear Oct 27, 2015 8:58 AM

Maybe it is a reflection of Obama.  First Black President and definitely first to wear panties.

DeadFred's picture

How would you have known if Taft was a crossdresser? At least back then there was better reason to stay closeted. Barry tries to pass now because lies are just his native tongue.

Crocodile's picture

I've heard it put his way: "Washington is Hollywood for UGLY people".  Thankful to God for another day of food, water, shelter, clothing and electricity AND much more.

NoDebt's picture

"It remains to be seen whether current U.S. asset price ranges can be sustained once the Federal Reserve begins to raise interest rates, broadly expected to occur between December and June."

The answer is no, they can't.  And the Fed damned well knows that which is why we should all ask "what year?" when there is talk about what month rate increases will begin.

the grateful unemployed's picture

ah yes that shadow of doubt meant to confuse the ducklings, it doesnt bother the wolf. they know there is no interest rate hike or that it will have certain offsets to make it palatable. long term the plan is to destroy small business, which leaves only a few very large and very stupid companies (MS?) in charge of american industry. all the better to juggle asset values higher. (just buy back those shares and control your float) right now their plan is to raise rates at a fraction of the rate of inflation, which lifts the stock market. bob apetit

taopraxis's picture
taopraxis (not verified) Oct 27, 2015 8:55 AM

Manipulation weakens and will eventually destroy the markets. People have sometimes said that the banksters want to make them get a rope and find a tree but if you have rope, just give it to the banksters and watch them hang themselves with it. Seriously, creating an air pocket under an overpriced market is the essence of stupidity.

Ouagadoudou's picture

Yes, they are completely fuck

Kprime's picture

what a crock of bama brains,

"broadly expected to occur between December and June."


taopraxis's picture
taopraxis (not verified) Oct 27, 2015 9:18 AM

Gold just recovered this morning's snap reversal...bullish. Short squeeze in gold *might* be imminent. Prediction is difficult...especially the future.

Consuelo's picture

Yes but...


Here is some 'future' you can count on: Foreign policy is the conductor now.   Extrapolate from there what you will ---

Darkdoc's picture

It should all go they way they want.


The Fed does NOT raise rates in an election year.

Clowns on Acid's picture

Unless Trump looks like he is going to win.

Vlad the Inhaler's picture

The gov seems to have a pretty good understanding of the situation, which makes their actions all the more reprehensible.

the grateful unemployed's picture

the government always lies theyre just repeating the propaganda which the media has already swallowed. see above

the grateful unemployed's picture

and the fed put 450B onto bank reserves (which we know what that money can for stocks, like let me pay your mortgage and you'll have more money for the casino) through reverse repo. the age of QE may be over, but the various surrogates can keep the existing wash of liquidity circulating for years. addendum when that liquidity is insifficent the IMF will issie its new currency, all additive to the global currency float. bon apetit

SheepDog-One's picture

Gubmint....bunch of shitstorm troopers!

More Ammo's picture

Everything is Awesome...




When we live in "their" dreams...

polo007's picture

According to Macquarie Research:
The more they do; the worse it gets
In our latest commentary we ask whether indications of easing by ECB and PBoC and BoJ’s potential expansion of its own stimulus would lead to further contraction of global GDP/trade and whether only Fed QE4 could be reflationary.

Deflators of the world unite. As expected (here), CBs are becoming concerned. Not only has the Fed deferred tightening but ECB is sending a strong signal that it is contemplating expansionary measures by Dec’15 and it is likely that BoJ would at some stage increase both size and pace of its own stimulus. Finally, PBoC has simultaneously cut interest rates and RRR. Not surprisingly, financial assets responded in a typical “Pavlovian fashion” by assuming a “goldilocks” outcome of low interest rates for longer; ample liquidity; steady (but unspectacular) growth rates and low but positive inflationary outcomes.
However as discussed here and here, short of massive globally co-ordinated rise in monetary stimulus, incremental changes are unlikely to make much difference and there is an urgent need to re-think the entire Government support system by either allowing restoration of conventional business cycles (unlikely) or embarking on far more extreme and unorthodox policies (such as CBs directly funding fiscal spending, investment and consumption). Erosion of global velocity of money is severely blunting the impact of more conventional QEs.

At the same time, the divergent paths of the Fed and other key CBs are causing monetary and inflationary cross-currents. In essence non-Fed CBs are attempting to export their domestic overcapacity and deflation to the rest of the world and the more aggressive they become, the higher would be the likely deflationary outcomes.
The global economy and trade are already shrinking in US$ terms. In the last three quarters, global (US$) GDP has shrunk at ~5% clip with US$ global trade eroding at ~10% pace. The more ECB, BoJ and PBoC ease, the more likely US$ would ultimately appreciate at far stronger pace. Whilst initially an increase in non-US monetary stimulus reduces perception of tail risks and hence stabilizes or even depreciates US$, over the longer-term it is a recipe for much higher US$. As a result, at some stage DXY (US$) could surge from 95-97 to 110-120 and possibly higher. This would further compress the size of the global economy and trade (US$), perhaps returning global economy back to the levels of ‘09-10 (essentially wiping out the last five or six years of growth).
Why is measuring global economy and trade in US$ critical? As discussed in the past, global economy resides on the de-facto US$ standard. Other currencies play relatively minor role, with US$ accounting for ~50% of global transactions and in excess of 70% of global finance (Rmb is responsible for only ~3%). US$ is particularly significant for Asia-Pacific traders, Latam and commodity producers (though less so for Eastern Europe). If Fed tightens, it could potentially get much worse. However, even if Fed does not tighten but simply refuses to embark on a QE4, the outcome would still be higher deflation and lower US$ global economy and trade. In other words, some currencies are more equal than others and therefore Fed’s policies are far more inflationary than equivalent policies pursued by other CBs. If our core assumption of no tightening but no QE4 comes true, then deflationary pressures are still likely to strengthen as supply of global US$ continues to contract.
This explains our unwillingness to buy countries like Indo or Mal and instead our preference for commodity consumers and countries with trapped domestic liquidity and limited external vulnerabilities (i.e. India, China, Phil and Taiwan).

Clowns on Acid's picture

Slowly yet surely ... like Obama and his band of Bolsheviks finally admitting that they are not enforcing Immigration Law, like...yes we actually did make up the video story and lied about Benghazi ... yes...ObamaCare could only pass Congress if we lied about its functionality and costs ..... and yes the Fed is printing money out if thin air and buying up Bonds, stocks.... and fuck it ...maybe buy real estate too if we have to .... we need more non white people in the US to be able to overturn the White Man's Constitution.

Its in your face suckah... what you gonna do about it..?