After a nice recovery for the past two sessions, the market went back to its traditional pattern this year with another decline and it was brutal until a late in the day recovery got the indices off of their worst levels of the session.
For instance, the Dow plunged to an 805 point decline at its 1:30pm low before cutting that loss by more than half to finally end with a 349 point decline led by selling in BA, CAT, GS and MSFT which are the stocks that tend to do better on higher days.
Ditto for the S&P which always does worse on lower days and really got whacked around to a huge 114 point loss at the same time before it also battled its way back to recover half of this loss to end 56 points lower at 3822.
The Nasdaq did the worst of all with a 233 point decline to 10,476 as MU sold off after its earnings report and this hurt the chip stocks such as NVDA badly while the Russell 2000 Index of small stocks finished 23 points lower at 1754.
The VIX, which had gotten a little too low on Wednesday, rebounded back with a gain up to 21.97 after being as high as 24.30 on the early afternoon market low as mentioned above.
And we had a case of the old “good news is bad news” as the final estimate for 3Q G.D.P. came in higher at a growth of 3.2% as worries increased again that the Federal Reserve may indeed follow through on its pledge to keep hiking interest rates and to hold them at a high level for a while in order to get inflation under control. This idea was also a result of weekly jobless claims coming in less than expected (see below), which indicates a still strong labor market.
And how about that pathetic TSLA, which has also felt some pain from rising interest rates, although it is also dealing with issues specific to itself and its C.E.O., such as the bungling takeover of Twitter which has forced the selling of stock to pay for the costs of this acquisition and is now down for the year by 64%. It is also taking the rare step by offering discounts on its two top-selling models through year’s end, an indication that demand is slowing.
There is also the concern about profits across industries, which are contending with the weight of higher interest rates, still-high inflation and rising costs due to payroll and other expenses. A drop-off in corporate profits in 2023 could knock out another support for stocks after profits strengthened through much of 2022.
Used car retailer KMX fell after it reported a much weaker profit for its latest quarter than analysts expected.
Mixed economic signals have left stocks in a topsy-turvy pattern lately, as the housing industry and other areas of the economy whose fortunes are closely tied to low interest rates have already shown sharp downturns. But consumer confidence has strengthened recently, offering hope for the biggest and most important part of the economy, which is consumer spending.
Inflation has been moderating since peaking in the summer, which at times has raised hopes that the Fed may back off its tough talk on interest rates. But Fed officials continue to send out the message that they will continue to raise rates further in 2023 and do not envision a cut to rates before 2024.
The Fed has already hiked the federal funds rate up to its highest level in 15 years, after it began 2022 at a record low of roughly zero. That has a growing number of economists predicting a recession will hit the U.S. economy in 2023.
And the Fed is just one of many central banks around the world hiking rates at a rapid clip. Even the Bank of Japan, which has been a holdout in keeping interest rates super-low this year, this week made moves that would allow some rates to rise a bit.
The yield on the two-year Note rose to 4.26% from 4.22% late Wednesday while the 10-year increased to 3.68% from 3.67% a day earlier. This has narrowed the yield curve into .58 and this is down from a high of .82 basis points a couple of weeks ago.
This week sees the following earnings: yesterday – MU and KMX lower; today – PAYX higher.
Economic reports will have: yesterday – weekly jobless claims rose by 2K to 213K, final reading for 3Q G.D.P. was increased to 3.2%; today – November personal income rose by 0.4% while personal spending increased by 0.1%, November PCE (Personal Consumption Expenditures) increased by 0.1% while year over year it was ahead by 5.5% and the core rate excluding food and energy was up by 0.2% and 4.7% respectively, December preliminary durable goods orders declined by 2.1% but excluding transportation were ahead by 0.2%, November new home sales were higher by 6%, December U. of Michigan final Consumer Sentiment Survey rose to 59.7
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.