3 Things… 

1. Equity Trends: S&P500 is just below its 200-day now serving as resistance, trend is barely DOWN but trying to shift with the index about 1.67% below its 200-day MA; the NASDAQ is trading near its 2-day and is about 7.3% below its 200-day MA, strong DOWN trend remains intact; Dow now STRONG UP trend 3.80% above its 200-day MA, with its 20-Day as resistance. About 79.20% of the S&P 500 and 54.47% of the NASDAQ, and 86.67% of the Dow, respectively, are above their 50-Days; Bulls25:Bears42; VIX +0.54% [1]
2. Bonds: 10Y 3.48%; 2Y 4.31%; 30Y 3.64%; 3-Mo 4.04% [2]
3. Sectors: Best 3-month sectors: Healthcare (+6.89%); Industrials (+5.10%); Materials (+4.98%); Crypto/Bitcoin -0.48% (17,144); [3]

This Week’s Quotable

James Paulsen, chief investment strategist at Leuthold Group, said if the CPI print is not as hot as expected, that could boost the market. “It could be very bullish, if it’s big enough on the downside,” he said. “If it’s in line, maybe the Fed is not going to be a big deal because people will pretty much know what it is. The dollar, the bond market, the stock market to some degree have already discounted and made up their minds about 50 basis points.”

Paulsen said the market view is shifting and investors are becoming more worried about the possible results of Fed tightening rather than why it is raising interest rates.

“I think the markets are increasingly speaking and ignoring the Fed. The primary fear was inflation,” he said. “Recession has taken over as the top fear.”

Stocks were weaker in a turbulent past week, while bond yields were lower. The S&P 500 was down by 3.37% for the week, and the widely watched 10-year Treasury yield was at 3.586%. Some strategists say the market is caught in a downtrend, driven by fear of recession and worries that profits will be weaker when fourth-quarter earnings are reported. Some expect the market to retest its lows in the first quarter.

Paulsen said he does not expect the market to return to its lows. Falling yields should also help stocks.
Recession fears. 
“If you’re more worried about recession than inflation, that means you bring in more bond buyers than sellers,” he said. Bond yields fall as prices rise. “The more aggressive the Fed talks about raising rates, the more the worries about recession increase. The more bond buyers are brought in.”

Paulsen said he expects it was inflation that drove the market to its lows, and it is now priced in.

“I already see a new easing cycle. It’s in play,” he said.

Reported by CNBC Friday. [4]

Recent Highlights

• PPI/Core PPI increased 0.3%/0.3% (12/09)
• Initial Claims increased to 230,000 (12/08)
• Consumer Credit increased by $27 billion (12/07)
• Crude Inventories decreased 5.2 million barrel (12/07)

In the Markets

Wall Street closed higher on Thursday, its first winning day of the week. Investor mood improved on jobless claims coming in higher, on expected lines, thereby acting as an indicator for the Fed to infer that its policies were showing results. All three major indexes ended in the green.

How Did the Benchmarks Perform?

The Dow Jones Industrial Average (DJI) rose 0.6% or 183.56 points to close at 33,781.48 points. Twenty-two components of the 30-stock index ended in positive territory, while eight ended in negative.

The S&P 500 gained 0.8% or 29.59 points to close at 3,963.51 points. Nine of the 11 broad sectors of the benchmark index ended in positive territory. The Technology Select Sector SPDR (XLK), the Consumer Discretionary Select Sector SPDR (XLY) and the Health Care Select Sector SPDR (XLV) increased 1.6%, 1% and 0.9%, respectively, while the Energy Select Sector SPDR (XLE) declined 0.5%.

The tech-heavy Nasdaq added 1.1% or 123.45 points to finish at 11,082.00 points.

The fear-gauge CBOE Volatility Index (VIX) decreased 1.7% to 22.29. A total of 10.1 billion shares were traded on Thursday, lower than the last 20-session average of 10.9 billion. The S&P 500 recorded 15 new 52-week highs and three new lows, while the Nasdaq posted 82 new highs and 232 new lows.

Jobless Claims Report Sparks a Relief Rally

Wall Street is currently in a “bad news is good news” territory. Recent sessions have been dominated either by the apprehension of an economic downturn arising out of continued monetary policy tightening or economic indicators suggesting that the Fed might already be convinced that its measures have started taking effect and would go slow in its pace of rate hikes. Wednesday’s trade was boosted by the latter, with jobless claims for the week coming in high.

The Labor Department said on Thursday that initial jobless claims rose to 230,000, increasing by 4,000 for the week ending Dec 3, from the previous week’s revised level. The previous week’s level was revised up by 1,000 from 225,000 to 226,000. The four-week moving average increased to 230,000, marking a rise of 1,000 from the previous week’s revised average. The previous week’s average was revised up by 250 from 228,750 to 229,000.

Continuing claims came in at 1,671,000 for the week ending Nov 26, increasing 62,000 from the previous week’s revised level. The previous week’s numbers were revised up by 1,000 from 1,608,000 to 1,609,000. The four-week moving average came in at 1,582,250, an increase of 43,250 from the previous week’s revised average. The previous week’s average was revised up by 250 from 1,538,750 to 1,539,000.

These job numbers come in as a counter to last Friday’s labor market report, which had shown employers hiring more workers and wage had increased. Usually, strong economic data is good news for the market. However, such are times that investors cheered seeing an increased number of Americans filing claims for jobless benefits last week and unemployment rolls hitting a 10-month high toward the end of November.

The general consensus is that this might again push the Fed into contemplating that its measures have actually started taking effect and it would turn more dovish, thereby bringing down treasury yields and attaining a soft-landing of the economy. Currently, bets are on the central bank raising rates by 50 basis points at its Dec 13-14 policy meeting. But these jobs numbers certainly did enough on the day to send the market into a relief rally in a week which is likely to end in losses, that too well into the holiday season. The biggest gainers on the day were technology and consumer discretionary stocks.

Consequently, shares of Hyatt Hotels Corporation (H) and Amazon.com, Inc. (AMZN) rose 1.8% and 2.1%, respectively. [5]

Sources: [1][3] Stockcharts.com; [2] morningstar.com [4] Critical inflation report could be the key to the week ahead, as the Fed meets (cnbc.com) [5] Zacks Professional Services, “Today’s Key Market and Economic News” for Friday December 2, 2022.