Inflation and Recession Fears Send Markets Lower

December 10, 2022

Inflation and Recession Fears Send Markets Lower – December 9 Market Recap

Indices

Dow 33,476, -953 or -2.8%.
Nasdaq 11,004, -457 or -4.0%.
S&P 4,071, -137 or –2.8%.
USD10Y 3.567%, -12.4bp or -3.4%.
WTI Crude $71.59/bbl, -$8.62 or -10.74%.

Despite a fairly light week news wise, the “recession is coming” narrative took hold and sent markets lower. There were two specific pieces of data upon which the market fixated; Monday’s ISM Services index (which this author has never seen move markets) and Friday’s Producer Price Index (wholesale prices). The ISM Services Index was better than expected and was also an improvement over last month’s print. This was a case of “good news is bad news” as market participants believed it might cause the Fed to prolong its rate hiking cycle. The Producer Price Index month over month number (MoM) was slightly more worrisome as it came in a tad higher than expectations +0.3% vs +0.2% expected. However, it was the third consecutive month that prices had risen +0.3%, demonstrating that prices are stabilizing and not increasing further. In addition, the Year over Year (YoY) number fell significantly from +8.1% to +7.4%.

Meanwhile, despite all the handwringing over previously ignored economic data points, crude oil prices, which touch the entire economy, fell precipitously last week. WTI Crude was down over 10%, has retraced its entire 2022 rally and closed Friday nearly $4 lower than its $75.33/bbl December 31, 2021, closing level. National gasoline prices have followed suit and are also below their levels a year ago (this includes California as well). Let’s see what the CPI data tells us next week.

Next Week

Unlike this just concluded week, next week is chock full of market moving data. The headliners will be Tuesday’s November Consumer Price Index and Wednesday’s Fed interest rate decision and more importantly, Fed Chair Powell’s subsequent press conference.

Economic Calendar

Monday – November NY Fed 1-year and 5-year inflation expectations.
Tuesday – November Consumer Price Index.
Wednesday – FOMC Interest Rate Announcement, Fed Chair Press Conference.
Thursday – Initial Jobless Claims, November Retail Sales, December Empire State Manufacturing and Philly Fed Manufacturing.
Friday – December S&P U.S. Manufacturing & Services PMI (flash).

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 9 Daily Trading Recap…

Monday – Dow –482 to 33,947 Nasdaq –221 to 11,239, S&P -73 to 3,998, USD10Y +9.3bp to 3.599%

All eleven S&P sectors traded down today, led lower by Consumer Discretionary, Energy, and Financials.
November S&P U.S. Services PMI was in line at 46.2, up slightly from last month’s 46.1.
November ISM Services Index was better than expected at 56.5% vs 53.7% and last month’s 54.4% print. Supposedly this is what caused the market to fall today as investors worried about its impact on the Fed’s decision making regarding future rate hikes.

Tuesday – Dow -350 to 33,596, Nasdaq -225 to 11,014, S&P -57 to 3,941, USD10Y –8.6bp to 3.513%.

Ten eleven S&P sectors traded down today, led lower by Energy, Communication Services, and Technology.
Markets fell for the fourth consecutive day on continued recession fears.
The probability of a 50bp hike at the December Fed meeting increased today to 78.2% vs 75.8% yesterday and 66.3% a week ago.

Wednesday – Dow +1 to 33,597, Nasdaq -56 to 10,958, S&P -7 to 3,933 USD10Y -10.5bp to 3.408%.

Eight of eleven S&P sectors traded down today, led lower by Communication Services, Technology, and Consumer Discretionary.
Campbell’s Soup (CPB) beat earnings and revenues on strong pricing and improved supply chain and rose 6% during the normal session.

Thursday – Dow +194 to 33,781, Nasdaq +124 to 11,082 S&P +30 to 3,963, USD10Y +8.0bp to 3.488%

Jobless claims rose to 230,000 claims vs 230,000 expected and last week’s slightly revised higher print of 226,000 (originally 225,000 claims). Continuing claims rose 57,000 to 1.671 million, their highest level since February.
The Federal Trade Commission filed suit to stop Microsoft’s purchase of video game maker Activision-Blizzard.
Broadcom (BRCM) beat their earnings estimates and raised revenue guidance for the next quarter. Costco (COST) missed both its revenue and earnings estimates.

Friday – Dow -305 to 33,476, Nasdaq -77 to 11,004, S&P -29 to 3,934, USD10Y +7.6bp to 3.567%.

Ten of eleven S&P sectors traded down today led lower by Energy, Healthcare, and Materials.
Month over month (MoM) November PPI (wholesale prices) was higher than expected at +0.3% vs +0.2%. Year over Year (YoY) PPI fell considerably from +8.1% in October to +7.4% this year.
University of Michigan Consumer Sentiment (prelim) was 59.1 vs expectations of 56.5 and last month’s 56.8 print.
University of Michigan 5-year Inflation Expectations (prelim) remained unchanged at 3.0%.

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.