3 Things… 

1. Equity Trends: S&P500 is 4.42% below its 200-day, Trend is still DOWN, currently trading to try and stop the slide; the NASDAQ is likewise seeking support about 11.53% below its 200-day, strong DOWN trend remains intact, currently trading to stop the slide; Dow now STRONG UP trend 2.23% above its 200-day MA, current trading is sideways. About 56% of the S&P 500 and 32.5% of the NASDAQ, and 63% of the Dow, respectively, are above their 50-Days; Bulls20:Bears32; VIX 21.07 -4.10% [1]
2. Bonds: 10Y 3.67%; 2Y 4.24%; 30Y 3.73%; 3-Mo 4.35% [2]
3. Sectors: Best 3-month sectors: Energy (+24.34%); Industrials (+16.55%); Materials (+15.16%); Crypto/Bitcoin +0.13% (16,838); [3]

This Week’s Quotable

“The economic numbers announced today highlight the difficulty for investors today, where weak numbers bring recession fears and strong numbers bring Fed fear. You just can’t win right now on macro numbers. That is why it’s now much more of a stock-picking market, but with all the index and ETF traders even stocks that are executing their business plan well can get pushed around meaningfully by associated losers.”

— Louis Navellier, founder and chief investment officer of growth investing firm Navellier & Associates, as reported by CNBC Friday. [4]

Recent Highlights

• PCE/Core PCE Inflation increased 0.4%/0/2% (12/23)
• Personal Income increased 0.4% (12/23)
• Personal Spending increased 0.1% (12/23)
• Personal Savings Rate rose to 2.4% (12/23)

In the Markets

U.S. stock markets closed sharply lower on Thursday resuming December selloff after two days of positive ending. Market participants remained extremely concerned about a recession in 2023. Several strong economic data have negative impact on investors’ sentiment that the Fed will continue its aggressive monetary policies going forward. All the three major stock indexes finished in negative territory.

How Did the Benchmarks Perform?

The Dow Jones Industrial Average (DJI) plummeted 1.1% or 348.99 points to close at 33,027.49. Notably, 26 components of the 30-stock index ended in negative territory while 4 in positive zone. At its session low, the blue-chip index was down nearly 803  points.

The tech-heavy Nasdaq Composite finished at 10,476.12, plunging 2.2% or 233.25 points due to weak performance of large-cap technology stocks. Semiconductor  giants like NVIDIA Corp. (NVDA) and Advanced Micro Devices Inc. (AMD) tumbled 7% and 5.6%, respectively.

The S&P 500 slid 1.5% to end at 3,822.39. All 11 broad sectors of the benchmark index closed in negative territory. The Consumer Discretionary Select Sector SPDR (XLY), the Energy Select Sector SPDR (XLE), the Materials Select Sector SPDR (XLB), the Technology Select Sector SPDR (XLK) and the Industrials Select Sector SPDR (XLI) plummeted 2.6%, 2.3%, 1%, 2.5% and 1.3%, respectively.

The fear-gauge CBOE Volatility Index (VIX) was up 9.5% to 21.97. A total of 10.88 billion shares were traded on Thursday, lower than the last 20-session average of 11.24 billion. Decliners outnumbered advancers on the NYSE by a 3.78-to-1 ratio. On Nasdaq, a 2.04-to-1 ratio favored declining issues.

Recession Fears Grip Markets

Market participants are highly concerned about a recession in 2023. On Dec 14, the Fed increased interest rates by another 50 basis points. The Fed indicated a continued increase in interest rates at regular intervals through 2023. The latest interest rate hike took the benchmark range to 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 Bank 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 the ongoing rate increases could push the economy into a recession.

On Dec 20, global financial markets were completely surprised as the Bank of Japan suddenly widened its target range for the 10-year Japanese government bond yields. The Bank of Japan raised the yield curve control range to 0.5% from the current level of 0.25%, around its target level of 0% yield.

This has sparked widespread selling of bonds and stocks across the global financial markets as the Japanese central bank’s move was perceived by market participants as potentially hawkish. BOJ has so far maintained a 0% benchmark interest rate.

Economic Data

The Department of Commerce reported that the U.S. GDP for third-quarter 2022 grew at 3.2%, beating the consensus estimate of 2.9%. The first estimate was 2.6% and the second estimate was 2.9%. Notably, in the first two quarters of 2022, the U.S. economy contracted.

The Department of Labor reported that weekly jobless claims rose by 2,000 to 216,000 for the week ended Dec 17. The consensus estimate was 223,000. Previous week’s data was revised upward to 214,000 from 211,000 reported earlier. Continuing claims (those who already received government grants and reported one week back) decreased 6,000 to 1.672 million for the week ended Dec 12. [5]

Sources: [1]&[3] Stockcharts.com; [2] morningstar.com [4] S&P 500 rises but heads for third straight down week (cnbc.com); [5] Zacks Professional Services, “Today’s Key Market and Economic News” for Friday December 23, 2022.