Yesterday was a perfect example of when there is a discrepancy between the Dow and the Nasdaq, the market invariably ends up in the direction of the latter as for instance the Dow got out to a gain of 177 points in the early going while the S&P got to as high as 16 ahead. But after a nominal trip into positive territory, the Nasdaq slipped badly into negative ground and remained there for the entire session.
So which way do you think that the Dow and S&P ended and if you said lower from those highs you were correct.
So after all was said and done, the Dow managed to eke out a one point gain to 33,597 as advances in AMGN, HD and UNH slightly outweighed declines in CRM which hit a new low, GS and V.
The S&P chopped around lower after its morning advance and ended down by 7 points to 3933 for its fifth straight decline and eighth lower session out of the past nine while the Nasdaq fell by 56 to 10,958 and was able to hold steady at the lower levels for the rest of the session as well. It was hurt by ongoing weakness in AAPL and TSLA, both of which have been awful this week.
The Russell 2000 Index of small stocks did nothing with a 5 point decline to 1807 while the VIX continued to gain to 22.68 from its very strong support at 19.06 early in the week, which is what sealed the market’s downside fate this week.
The main feature of the day was the ongoing sharp decline in Treasury yields to their lowest level in months for the 10-year Note which slid to 3.42% from 3.53% late Tuesday while the 2-year eased back to 4.27% from 4.36%. This widened the yield curve out to 85 basis points which is the most in 40 years and could unfortunately be a sign of recession coming up in 2023.
So why the market has been lousy this week with yields declining is probably the perception that the economy is weakening and that first-quarter earnings are going to decline which then becomes negative for equities.
CPB did well on its report and the homebuilders also gained due to the lower interest rates which should help mortgage rates decline a bit from here while on the negative side there was CVNA which plunged by 42%, its biggest single day drop on record, after a warning that the used vehicle chain’s bankruptcy risk is rising. The company has lost 98% of its value since the beginning of the year and once had the nerve to trade as high as 370 at the height of the so-called “disruptive technology” frenzy which has basically dissipated for the time being.
And also strange is that the market continued to go lower despite the fact that crude oil prices declined to $72.01 per gallon, the lowest price this year and this is before the Russian invasion of Ukraine which now cannot be used as an “explanation” as to why energy prices are so high. This should definitely help inflation to ease back in future reports.
China’s imports and exports both declined at their fastest rate since 2020 and could be interpreted that this is another sign of global economic slowdowns.
This week sees the following earnings reports: yesterday – TOL, MDB, CPB, ASO higher while PLAY and BFB were lower; today – GME, CIEN higher; tonight – AVGO, CHWY, DOCU, LULU, COST, RH and MTN.
Economic reports will be important with the following: yesterday – – 3Q productivity rose to 0.8% while unit labor costs declined to 2.4%; today – weekly jobless claims rose by 4K too 230K; Friday – preliminary December U. of Michigan Consumer Sentiment Survey and the all-important November P.P.I.
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.