Daily Market Notes: 1-12-2023

Things have gotten a bit on the bullish side lately, as for instance the beaten-down Nasdaq has now rallied for four sessions in a row for the first time since last September, as many of those former large technology leaders have finally woken up after a long move to the downside, and AMZN, META which is higher by 10% this year after a 64% shellacking last year, and MSFT are good examples of this.

The indices all started higher, took a little late morning dip but not into negative territory and then just kept going to the upside in the final hour to end at their best levels.

For instance, the Dow accelerated into the close and ended with a 269 point advance up to 33,973 with large gains in GS, HD, MSFT and UNH leading the way. The S&P did better as it is wont to do on these types of days because it gets help from the large-cap technology leaders and as a result it ended 50 points higher at 3969. The Nasdaq once again did the best with a 189 point advance up to 10,931 while the Russell 2000 Index of small stocks followed along with 21 point to the upside at 1844.

What was notable was that  the VIX, which should have gone lower on such a solid upside day in stocks, actually went higher by a bit and ended at its best levels of the session, go figure. One can look at this in two ways – the first of which is that it had gone down too much on Tuesday during that huge upside move in the market and had to adjust a bit higher, or if one wants to be cynical about it, the upward movement is anticipating that today’s all-important December C.P.I. report will come in above consensus which could lead to a large market selloff considering the recent rally going into the report. But this does not appear to be happening as the various stock index futures, which initially sold off sharply after the release of the numbers (see below) have actually recovered and are higher as we have gotten closer to the opening, but on the other hand, this looks like a really volatile session coming up with swings in both directions the likely outcome.

Stocks have started the new year with gains on hopes that cooling inflation and a slowing economy may get the Federal Reserve to ease off its prior sharp interest rate hikes. Such increases can help stamp out high inflation, but they also slow the economy by design and raise the risk of recession.

The expectation for this report is to show that inflation is continuing to cool from its summertime peak, down to 6.5% last month from 7.1% in November and from 9.1% in June. The hope is that such a trend toward lower numbers could convince the Fed to soon halt its intense set of rate increases.

Some optimists are even projecting that the Fed will cut interest rates in the second half of this year, to help prop up an economy that is beginning to show pockets of weakness because of past rate hikes. Cuts to rates can make the stock market rally.

So in a sense the market looks like it does not believe the Fed when they say they are going to keep hiking because rates in the bond market have been declining for the past several weeks, so today we will see who is right or wrong.

The Fed has already said repeatedly it plans to raise its key overnight interest rate further, past its current range of 4.25% to 4.50%. That rate began last year at its record low of virtually zero.

They have also insisted that it plans to keep rates high for a while to ensure inflation is really beaten down. It does not envision any rate cuts happening this year, and it has said that “unwarranted” rallies in the market  “driven by a misperception” would only make the mission of returning inflation to normal more complicated.

But investors have been disregarding those announcements on the expectations for an easier Fed, as the yield on the 2-year Note slid back to 4.22% from 4.24% late Tuesday. The 10-year Treasury yield dipped to 3.53% from 3.61%. It had been as high as 4.25% in the fall.

Earnings this week will see: yesterday – VSCO higher; today – TSM higher and KBH lower; Friday – a host of large bank earnings such as: Dow components JPM and UNH plus BAC, BLK, C, DAL, BNY and  WFC.

Economic reports will have: today – weekly jobless claims fell by 1K to 205K, and the all-important December C.P.I. which has now declined for the sixth consecutive month with the overall rate down by 0.1% and year over year now at up 6.5% while the core rate excluding food and energy rose by 0.3% to a year over year advance of 5.7% and these numbers were right on consensus.

Donald M. Selkin

Chief Market Strategist


 Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.