The market began the new year yesterday with a strong opening rally, which then faded away in mid-afternoon before cutting those losses into the close.
For instance, the Dow began with a nice gain of 240 points, then collapsed to a 297 point decline at 2:30pm before cutting those losses to only an 11 point final decline to 33,136. It was hurt by large losses in CVX as energy stocks weakened after being the market leaders in 2022 and in UNH plus AAPL. On the other hand, it got support from advances in BA, CRM, GS, 3M and WMT.
The S&P followed a similar pattern with a strong opening gain of 39 which then drifted to a 45 point loss also at 2:30pm before it also cut its worst level of the session to finish 15 points down to 3824. It was hurt badly by a large decline in its most valuable component AAPL and that pathetic TSLA which is in a complete collapse mode.
So now we have the famous Santa Claus rally with a 2 point net gain for the final 5 days of the old year going into the 2nd day of the new year as it began this journey at 3822 and is now at 3824 and let us see how this drama plays out today for the final verdict.
The Nasdaq followed a similar pattern with a starting advance of 147 to an afternoon low of down 157 before it was also able to end off of its worst levels at a 79 point closing decline to 10,386.
So once again, the major indices ended up on the first trading day of 2023 similar to how they finished in 2022, namely the Dow doing the least worst and the Nasdaq doing the worst, as it was hurt by those large declines in AAPL and TSLA.
The Russell 2000 Index of small stocks just followed the others lower with a 10 point decline down to 1750. The VIX ended higher as it should on a lower day in the indices as it moved up to 22.9 as it remains in this very narrow range despite the volatile intraday movements of stocks.
As mentioned above, AAPL got clocked to the downside by almost 5 points, leaving its market value below $2 trillion for the first time since March 8, 2021. Shares in the iPhone maker fell nearly 27% in 2022, their first annual decline in four years amid a broad slide in technology sector stocks.
Long-term bond yields fell significantly. The yield on the 10-year Treasury fell to 3.73% from 3.88% late Friday while the 2-year ended at 4.36% which steepened the yield curve from its recent narrowing.
Investors are opening a new year with the same concerns that weighed on markets in 2022, leading the benchmark S&P to plunge nearly 20% for the year, just its third annual decline since the financial crisis 14 years ago.
Inflation is easing, but remains stubbornly hot, which has prompted the Federal Reserve to keep raising interest rates to slow economic growth. That has left investors bracing for a possible recession and higher unemployment that could result from those policies.
We will get more insight into the Fed’s thinking later today at 2pm with the release of the Fed minutes from the December meeting while the next interest rate raising decision will come on February 1st.
The federal funds rate stands at a range of 4.25% to 4.5% after rocketing from 0% to 0.25% at the beginning of 2022. The U.S. central bank forecasts that it will reach a range of 5% to 5.25% by the end of 2023 and it currently does not predict a rate cut before 2024.
The next round of earnings for the fourth quarter will start coming in next week and the expectation is for a 3% decline and then to remain flat for the first half of 2023.
At yesterday’s morning conference call, we mentioned that according to the statistical firm Bespoke, it was reported that the Russell 3000 Index, which basically covers the entire market, lost $6.7 trillion in 2008 but did worse in 2022 with a decline of $11.2 trillion with $5.2 trillion of that loss coming from 10 of the largest technology stocks alone, with the booby prizes going (in order) to AAPL, AMZN, GOOG, MSFT, TSLA, META, NVDA, NFLX, AMD and SNAP.
Earnings this week include: Thursday – CAG, STZ and Dow component WBA.
Economic reports will have: yesterday – November construction spending gained 0.2%; today – minutes from December F.O.M.C. meeting at 2pm, November JOLTS survey rose to 10.5 million, ISM December Manufacturing Survey slipped to 48.4 which was the lowest since May, 2020; Thursday – weekly jobless claims; Friday – November factory orders, December ISM Services Index report, December non-farm payrolls report for which the estimate is 218,000 versus 263,000 the prior month with the unemployment rate remaining at 3.7%.
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.