3 Things… 

1. Equity Trends: S&P500 maintains its mid-3900 levels where it closed  last Thursday Nov 10, with its 200-day as resistance, trend continues to be DOWN and about 2.71% below its 200-day MA; the NASDAQ is trading at last Thursday’s (Nov 10) levels and is about 8.23% below its 200-day MA, strong DOWN trend remains intact; Dow now STRONG UP trend 3.68% above its 200-day MA and holding the 39,690 level also established on Nov 10. About 81% of the S&P 500 and 56% of the NASDAQ, and 28% of the Dow, respectively, are above their 50-Days; Bulls34:Bears40; VIX -1.71% [1]
2. Bonds: 10Y 3.77%; 2Y 4.43%; 30Y 3.89%; 3-Mo 4.22% [2]
3. Sectors: Best 3-month sectors: Energy (+15.76%); Healthcare (+1.54%); Financials (-0.29%); Crypto/Bitcoin +0.02% (16,683); [3]

This Week’s Quotable

“We continue to think investors should place much more emphasis on the actual data and not focus too much on Fed rhetoric (the former will show where inflation is headed while the latter is fixated on where it was). That said, investors are tired of battling the Fed’s daily tape bombs and the fear is it may take 2-3 more CPIs for officials to stop admonishing the market every time it tries to rally.” Adam Crisafulli, founder of Vital Knowledge as reported by CNBC Friday. [4]

Recent Highlights

• Leading Indicators (11/18 at 10:00 AM EST)
• Existing Home Sales (11/18 at 10:00 AM EST)
• Durable Orders (11/23 at 8:30 AM EST)
• New Home Sales (11/23 at 10:00 AM EST)

In the Markets

Wall Street closed modestly lower on Thursday for the second straight session. Comments coming in from an important Fed official suggested that policy tightening is far from over and that further rate hikes are on the way. The 2-year and 10-year treasury yields rose on the news. All three major indexes ended slightly in the red.

How Did the Benchmarks Perform?

The Dow Jones Industrial Average (DJI) fell 0.02% or 7.51 points to end at 33,546.32 points. Seventeen components of the 30-stock index ended in the positive territory, while 13 ended in the negative.

The S&P 500 lost 0.3% or 12.23 points to close at 3,946.56 points. Nine of the 11 broad sectors of the benchmark index ended in negative territory. The Utilities Select Sector SPDR (XLU), the Consumer Discretionary Select Sector SPDR (XLY) and the Materials Select Sector SPDR (XLB) decreased 1.8%, 1.2% and 1%, respectively, while the Energy Select Sector SPDR (XLE) gained 0.2%.

The tech-heavy Nasdaq declined 0.4% or 38.70 points to finish at 11,144.96 points.

The fear-gauge CBOE Volatility Index (VIX) decreased 0.8% to 23.93. A total of 10.3 billion shares were traded on Thursday, lower than the last 20-session average of 12.1 billion. Decliners outnumbered advancers on the NYSE by a 2.06-to-1 ratio. On Nasdaq, a 1.65-to-1 ratio favored the decliners.

Important Fed Official Turns Hawkish

In recent sessions, the market has been energized and driven by various dovish comments coming in from Fed officials suggesting that the central bank would start to revisit its policy of hiking interest rates at a rapid pace to tackle inflation. The underlying reason behind them turning dovish has been the fact that the recent string of economic data has suggested that the Fed’s policy has started taking effect and demand has contracted. However, this notion took a hit on Thursday, with St. Louis Fed President James Bullard expressing his views at an economic event in Louisville, KY.

Bullard said that the Fed needs to keep raising rates because policy tightening has so far had only limited effects on observed inflation. The target policy needs to rise to at least 5.00% to 5.25% from the current level of just below 4.00% to be sufficiently restrictive.

However, Bullard said that he would leave the immediate steps to be taken in the Fed meeting slated for Dec 13  and 14 up to Fed Chair Jerome Powell. “On the question of how much to do at any particular meeting, I would leave that up to the Chair,” Bullard said. “If you do more now, you have less to do in the first quarter (of 2023). If you do less now, then you have more to do in the first quarter. Generally speaking, it probably does not make a lot of difference in terms of the macroeconomics.”

This is being perceived as a pushback from the Fed’s recent stance of trying to reassure the markets that it would slacken its stringent policy measures to avoid a hard landing of the economy, and stocks fell on the news. Treasury yields rose on the apprehension of an imminent economic slowdown if policy tightening were to continue. The benchmark 10-year treasury yield increased nearly 8 basis points to 3.773%, while the 2-year treasury yield went up to 4.450%, thereby leaving an adverse impact on growth stocks.

Consequently, shares of Norwegian Cruise Line Holdings Ltd. (NCLH) and The Walt Disney Company (DIS) slid 6.8% and 2.7%, respectively.

Oil Prices Fall on Worries of Rate Hikes and China Demand

Oil prices fell more than 3% on Thursday on demand concerns caused by mounting COVID-19 cases in China and apprehensions of further planned rate hikes by the Fed. Brent crude fell $3.08 to settle at $89.78/barrel, down 3.3%. WTI crude slid $3.95, or 4.6%, to settle at $81.64/barrel.

Economic Data

The Labor Department said on Thursday that initial jobless claims fell to 222,000, decreasing 4,000 in the week ending Nov 12, 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 221,000, marking a rise of 2,000 from the previous week’s revised average. The previous week’s average was revised up by 250 from 218,750 to 219,000.

Continuing claims came in at 1,507,000 for the week ending Nov 5, increasing 13,000 from the previous week’s revised level. The previous week’s numbers were revised up by 1,000 from 1,493,000 to 1,494,000. The 4-week moving average came in at 1,481,500, an increase of 31,000 from the previous week’s revised average. The previous week’s average was revised up by 250 from 1,450,250 to 1,450,500.

The U.S. Census Bureau, and the U.S. Department of Housing and Urban Development jointly reported that Building Permits in October were at a seasonally adjusted annual rate of 1,526,000. This is 2.4% below the revised September number of 1,564,000.

Housing Starts in October were at a seasonally adjusted annual rate of 1,425,000. This is 4.2% below the revised September number of 1,488,000. [5]

Sources: [1][3] Stockcharts.com; [2] morningstar.com [4] Dow jumps 150 points on Friday as investors shake off higher rate fears (cnbc.com); [5] Zacks Professional Services, “Today’s Key Market and Economic News” for Friday November 18, 2022;