3 Things… 

1. Equity Trends: S&P500 is 4.44% below its 200-day now seeking, but not seemingly finding as of mid-day Friday, support having moved around 50% down relative to its most recently well-established lows. Trend is still DOWN; the NASDAQ is likewise seeking support about 10.21% below its 200-day and about 3.47% above its most recent low, strong DOWN trend remains intact; Dow now STRONG UP trend 1.14% above its 200-day MA, with next support about 2% down from current trading. About 57% of the S&P 500 and 26% of the NASDAQ, and 63% of the Dow, respectively, are above their 50-Days; Bulls24:Bears45; VIX +1.23% [1]
2. Bonds: 10Y 3.44%; 2Y 4.23%; 30Y 3.48%; 3-Mo 4.34% [2]
3. Sectors: Best 3-month sectors: Industrials (+9.53%); Materials (+8.30%); Energy (+7.81%); Crypto/Bitcoin -2.95% (16,847); [3]

This Week’s Quotable

Fed is making a ‘terrible mistake’ by hiking further, says Wharton’s Siegel
Plans from the Federal Reserve to continue hiking rates into next year heighten the odds of a very difficult downturn ahead, according to Jeremy Siegel, professor of finance at the University of Pennsylvania’s Wharton School of Business.

“I think the Fed is making a terrible mistake,” he told CNBC’s “Squawk on the Street” on Friday. “Their plan, their dot plot, is way too tight. Inflation is basically over, despite the way Chairman [Jerome] Powell characterizes it.”

According to Siegel, the central bank should refrain from hiking further, or keeping rates elevated next year.

“Talk of going higher and staying high in 2023, I think would guarantee a very steep recession,” he said.

— Samantha Subin, as reported by CNBC Friday. [4]

Recent Highlights

• Industrial Production declined 0.2% (12/15)
  Retail Sales declined 0.6% (12/15)
• Initial Claims decreased by 20,000 (12/15)
• Crude Inventories increased by 10.2 million bpd (12/14)

In the Markets

Wall Street ended sharply lower on Thursday, with the Dow recording its worst daily decline in more than three months, as investors worried that the Fed’s tough talks on inflation and relentless interest rate hikes could push the economy into a recession. All three major indexes ended in negative territory.

How Did the Benchmarks Perform?

The Dow Jones Industrial Average (DJI) plummeted 2.3% or 764.13 points to end at 33,202.22 points, recording its biggest daily decline since Sep 13, when the blue-chip index slid more than 1,200 points.

The S&P 500 declined 2.5% or 99.57 points to close at 3,895.75 points, recording its worst day in more than two months. Communication services, financials and tech stocks were the biggest losers.

The Communication Services Select Sector SPDR (XLC) and the Technology Select Sector SPDR (XLK) declined 3.9% and 3.7%, respectively. The Materials Select Sector SPDR (XLB) fell 3.1%. All 11 sectors of the benchmark index ended in negative territory.

The tech-heavy Nasdaq fell 3.2% or 360.36 points to finish at 10,810.53 points, logging its worst daily performance since Nov 2.

The fear-gauge CBOE Volatility Index (VIX) was up 7.99% to 22.83. Decliners outnumbered advancers on the NYSE by a 4.36-to-1 ratio. On Nasdaq, a 2.81-to-1 ratio favored declining issues. A total of 12.15 billion shares were traded on Thursday, higher than the last 20-session average of 10.63 billion.

Recession Fears Grip Markets

U.S. stocks continued to suffer on Thursday, a day after the Fed announced a 50-basis point rate hike, with losses deepening. Stocks took a further hit as disappointing retail sales for November sparked fears of a slowing economy.

On Wednesday, the Fed increased interest rates by another 50 basis points. Fed Chair Jerome Powell had earlier hinted that the central bank could slow down its pace of rate hikes after increasing interest rates by 75 basis points for the fourth consecutive time since June.

The Fed did slow down the pace but Powell didn’t paint a rosy picture of the future and indicated that the central bank would continue increasing interest rates at regular intervals through 2023.

Wednesday’s hike took the benchmark range of 4.25% to 4.50%, and the Fed projected it to top out at 5.25% before it takes a call on pausing the hikes. This is higher than the September forecast of 4.75%.        

Recession fears were further ignited after central banks in Europe also hinted at hiking interest rates through 2023. Both the Bank of England and the European Central slowed down their pace of rate hikes but increased interest rates by 50 basis points.

Investors were once again alarmed by this as they believe that ongoing rate increases could push the economy into a recession, setting the tone for a panic sell-off.

Thursday’s sell-off was broad-based. Only 14 stocks in the S&P 500 managed to end the session in the green. Technology stocks were once again the worst sufferers. Shares of Apple Inc. (AAPL) ended 4.7% lower, while Alphabet Inc. (GOOGL) declined 4.4%.

Economic Data

The Commerce Department reported that retail sales declined 0.6% in November, higher than economists’ expectations of a drop of 0.3%. This is also the biggest decline in the past five months.

The Labor Department reported that jobless claims totaled 211,00 for the week ending Dec 10, decreasing 20,000 from the previous week’s revised level of 231,000. The four-week moving average was 227,250, a decrease of 3,000 from the previous week’s revised average of 230,250.

Continuing claims came in at 1,671,000, an increase of 1,000 from the previous week’s revised level of 1,670,000. The 4-week moving average was 1,625,250 an increase of 43,250 from the previous week’s revised average of 1,582,000.

In other economic data released on Thursday, the Empire State manufacturing index declined to a negative 11.2 in December. Also, industrial production declined 0.2% in November. [5]

Sources: [1]&[3] Stockcharts.com; [2] morningstar.com [4] Dow opens 200 points lower as recession fears continue to batter Wall Street (cnbc.com); [5] Zacks Professional Services, “Today’s Key Market and Economic News” for Friday December 16, 2022.