Fortunately the Santa Claus rally time frame does not include the last five sessions of the old year and the first three of the new year, because if it did, then the net result would have been lower as after starting this period at 3822, it would have been negative.
This is because the major indices got whacked around big-time yesterday as both the S&P and Nasdaq are now on track for their fifth straight lower week unless by some miracle it has a really strong performance today. And that miracle might be the reaction to this morning’s 8:30am release of the December jobs report which has gotten the market off to a strong start and it appears as if the market will go the distance on the upside.
Things opened lower and just sort of drifted down as the day moved along, and as a result the Dow ended with a closing decline of 339 down to 32,930 hurt by selling once again in UNH, which got clocked big-time for the third straight day this week. In addition, there were losses in AXP, CRM, GSA, HD, HON, MSFT which has also been a downside disaster to start the new year, and WBA on poor earnings guidance also damaged the index.
The S&P, as previously mentioned, did worse with a selloff down to 3808 which put it below that near-term support at 3808. The Nasdaq did not help either with a 153 point loss to 10,305 while the Russell 2000 Index of small stocks just followed along to the downside and gave back 19 points to 1753.
The VIX meanwhile went higher on the equity decline and ended in its still narrow range of 22.46, holding the 19 downside support level while not getting into the 30’s which would indicate a really oversold condition.
So once again, we saw the old “good news is bad news” syndrome at work as better indications about the job market ahead of today’s always-important jobs report did things in. This led to the perception that the Federal Reserve would have to keep interest rates higher in their never-ending fight against inflation.
And believe it or not, investors got bent out of shape as they believed what the inevitably incorrect ADP said about private payrolls for today’s report as they estimated 235K versus the official government survey of only 210,000. In addition, the weekly jobless claims number fell to the lowest level in more than three months with a 19,000 decline down to 204,000. But wait, doesn’t the fact that there were only four business days last week during the period between Christmas and New Year’s might have had something to do with this?
Then there was the November JOLTS jobs opening report which showed a higher than expected number of 10.5 million, which was also an indication of a strong labor market.
The continued strength in the jobs market makes the Fed’s job of keeping inflation under control more difficult by putting upward pressure on wages. The central bank is determined to keep interest rates high to slow economic growth and tame inflation. The strategy, though, risks going too far which could lead to a recession.
The yield on the two-year Note went to 4.46% from 4.36% late Wednesday while the 10-year got up to 3.71% from 3.69% late Wednesday. The nation’s housing market has slowed sharply over the past year as the average rate on the benchmark 30-year mortgage more than doubled.
The Fed’s benchmark lending rate stands at a range of 4.25% to 4.5%, up from close to zero following seven increases last year. It has forecast that the rate will reach a range of 5% to 5.25% by the end of 2023 and is not calling for a rate cut before 2024.
Inflation has been easing from a peak in the C.P.I. of 9.1% in June to 7.1% in November and investors have been hoping for signs that could prompt the Fed to ease up on applying the brakes to the economy with high interest rates, but this has not worked out so far.
Fourth-quarter earnings are starting to trickle in with French fry maker LW doing well and Hunt’s ketchup maker CAG also gained. STZ, which markets Corona beer and Robert Mondavi wine, fell for the largest decline in the S&P 500 after the company trimmed its profit forecast for the year.
And how about that awful BBBY, which collapsed by 30% in its biggest slide in nearly two years, after the already struggling home goods retailer warned investors that it may need to file for bankruptcy as sales continue to drop and it struggles to attract shoppers. This completely destroyed the other former meme stock darlings such as AMC and GME as well, and more on this during Monday morning’s upcoming conference call.
The energy stocks, which did the best last year, continued their strong showing once again as the price of crude oil moved up a little. The Chinese internet stocks also did well and the travel, casino and airline issues also gained on optimism about people travelling more this year and on some easing restrictions in China.
Earnings this week include: yesterday – CAG and LW higher while STZ and Dow component WBA were lower.
Economic reports will have: yesterday – weekly jobless claims declined by 19K to 204K, November trade deficit narrowed to $61.5 billion which was the lowest since September 2020, ADP estimate for today’s jobs report came in at 235k; today – November factory orders, December ISM Services Index report came in lower at 49.6; , the big one which is the December non-farm payrolls report which came in at 223K while the unemployment rate slipped to 3.5%. Average hourly earnings dropped to 3,5% and only 4.6% year over year. The labor force participation rate was 62.3%.
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.