Fed Continues to Crash the Party

December 16, 2022

Fed Continues to Crash the Party – December 16 Market Recap

Indices

Dow 32,920, -556 or -1.7%.
Nasdaq 10,705, -299 or -2.7%.
S&P 3,852, -219 or –5.4%.
USD10Y 3.482%, -8.5bp or -2.4%.
WTI Crude $74.50/bbl, +$2.91 or +4.1%.

Markets were going along their merry way early this week. November Fed inflation expectations were lower than October’s numbers and more importantly the indices were celebrating a great Consumer Price Index print that showed both month over month and year over year inflation still increasing but at a slower pace than expected. Then of course, the Fed showed up on Wednesday, raised rates ½ percentage point as expected, and proceeded to crush the rally during a very hawkish press conference. Fed Chair Powell, in his opening statement and in response to questions from the press, said that despite multiple indications that the economy is slowing, that the Fed still anticipates raising rates for some time and does not anticipate cutting rates in 2023. Markets quickly turned negative and traded down significantly for the last two trading days of the week.

“Don’t Fight the Fed.” It’s a saying that has been repeated time and time again on trading desks and investment circles since the central bank’s inception. However, one must wonder when the bank may pause rate hikes given that Powell cited tepid GDP growth, significantly weakened housing markets, slower consumer spending and weakened business fixed investment. At what point does the bank risk overshooting, over tightening and positioning the economy into a recession while eliminating 1.6 million jobs (due to rate increases slowing the economy and creating layoffs as businesses downsize)?

Market Recap will return on January 6th. Happy Holidays and Happy New Year!

Next Week

It is a very light week for economic data next week. The lone exception is on Friday, when the Fed’s preferred measure of inflation, the Personal Consumption Expenditure (PCE), is released.

Economic Calendar

Monday – N/A
Tuesday – N/A
Wednesday – December Consumer Confidence, November Existing Home Sales.
Thursday – Initial Jobless Claims, Q3 Real GDP.
Friday – November PCE.

If you know of any friends or family members who could benefit from our services and these types of communiques during these unique times, we are accepting new clients and offer a complimentary one-hour review.

December 16 Daily Trading Recap…

Monday – Dow +528 to 34,005 Nasdaq +139 to 11,143, S&P +56 to 3,990, USD10Y +4.4bp to 3.611%

All eleven S&P sectors traded higher today, led by Energy, Utilities, and Technology.
November NY Fed 1-year and 5-year inflation expectations were both lower than last month. The 1-year expectation was 5.2% vs last month’s 5.9% and the 5-year expectation was 2.3% vs 2.4% last month.
Oracle (ORCL) beat both top and bottom-line expectations and traded up 2% post-close.

Tuesday – Dow +103 to 34,108, Nasdaq +113 to 11,256, S&P +29 to 4,019, USD10Y -11.0bp to 3.501%.

Ten of eleven S&P sectors traded higher today, led by Real Estate, Energy, and Communication Services.
Markets rallied for a second day on better-than-expected inflation news.
November month over month (MoM) CPI was +0.10% vs expectations of +0.3% and last month’s +0.4% print. As a result, the year-over-year (YoY) CPI fell to +7.1% vs +7.3% expected and last month’s +7.7%.
November Core CPI (MoM) was also better than expected at +0.2% vs +0.3% and October’s +0.3% print. YoY Core CPI fell to +6.0% vs +6.1% expected and last month’s +6.3%.
The probability of a 50bp hike at the December Fed meeting increased today to 83% vs 73.5% yesterday.

Wednesday – Dow -142 to 33,966, Nasdaq -85 to 11,170, S&P -24 to 3,995 USD10Y +0.2bp to 3.503%.

Ten of eleven S&P sectors traded down today, led lower by Financials, Materials, and Real Estate.
The Fed raised interest rates by 0.50% as expected. In his press conference however, Fed Chair Powell struck an aggressive tone saying there was more work to do to fight inflation and as a result markets fell across the board.

Thursday – Dow –764 to 33,202, Nasdaq -360 to 10,810 S&P -99 to 3,895, USD10Y -5.3bp to 3.45%

All eleven S&P sectors traded down today, led lower by Communication Services, Technology, and Materials.
Jobless claims fell to 211,000 claims vs 230,000 expected and last week’s slightly revised higher print of 231,000 (originally 230,000 claims). Continuing claims rose were relatively unchanged at 1.671 million.
November Retail Sales were worse than expected at –0.6% vs –0.3% and last month’s +1.3%.
December Empire State Manufacturing and Philadelphia Fed Manufacuring Index were both worse than expected. The former was –11.2 vs –0.5 expected and last month’s 4.5 print. Philly Fed came in at –13.8 vs –12.0 expected and –19 last month.
Stocks fell precipitously as yesterday’s Fed announcement sunk in and weak retail sales and manufacturing data stoked recession fears.

Friday – Dow -281 to 32,920, Nasdaq -105 to 10,705, S&P -43 to 3,852, USD10Y +3.2bp to 3.482%.

All eleven S&P sectors traded down today, led lower by Real Estate, Consumer Discretionary, and Utilities.
Both December S&P U.S. Manufacturing and Services PMI (flash) were lower than expected. 46.2 vs 47.7 for the former and 44.4 vs 46.5 for the latter.

Disclaimer: This is not a recommendation to buy or sell any of the securities listed above. I personally, or a family member whose account I control, have positions in the following securities/assets…Bitcoin, Cardano, Chainlink, Ethereum, ETHE, GBTC, and TSLA.