MARKET RECAP

• The S&P 500 rallied by 2.5% this week and US stocks broke the declining trend line and also broke above the 200-day moving average, a positive sign that maybe, and we emphasize “maybe”, the market is entering a new positive phase. The NASDAQ is up by 11% so far in 2023.

• The M2 money supply, which measures the amount of money in the economy,  declined by 1.3% year over year in December. The first decline ever, since the Fed started publishing the statistic in 1959. However, compared to pre-pandemic, M2 is 37% greater.
• Consumer spending declined by 0.2%.
• The Personal Consumption Expenditures Index (PCE) increased by only 4.4% year over year, another sign that inflation is abating.
• There were only 186,000 new jobless claims, a low number. But the number of temporary jobs has fallen for five straight months. Falling temporary jobs has often been a precursor to a recession.

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MARKET RECAP

• The S&P dropped by 0.7% but the Dow took a bigger hit, -2.7%.
• US stocks could not break through the declining trendline, meaning the trend is still negative.
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• The debt ceiling is a short and intermediate-term threat to the economy and the market.
• Jobless claims fell to 190,000 last week, the lowest level since September, indicating that the job market remains tight. However, there were several announcements of layoffs in the tech sector, Google will layoff 12,000 workers, Microsoft 10,000, and Amazon 18,000.
• Existing home sales wrapped up their worst year since 2014 in December. Sales were off by 17.8% compared to 2021. For the month of December, sales dropped by 1.5%, making it 11 months in a row of monthly sales declines.

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MARKET RECAP

US stocks advanced by 3.09%, international stocks by 3.37%, and bonds were up by 0.84%. International stocks continue to outperform and appear on an uptrend now, while US stocks are close to breaking the declining trend line (see the two charts below).

2022 trends are reversing, helping investors; lower interest rates, a lower dollar, tech stocks, and crypto is rallying, and inflation is falling.

With a Republican-controlled house, and the recent shenanigans in electing a speaker, don’t count on a smooth increase in the debt ceiling. We have already seen congressmen (and women) operate in their own perceived best interests, even when the well-being of the country is at stake. The Treasury should be good until early June.

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MARKET RECAP

Stocks closed the year with a slight loss of 0.1%. The overall US stock market returned -19.51% for the year, the S&P 500 was down by -18.17%,  international stocks were off by -16.09%, and bonds were down -13.02%.

The Dow did the best, dropping by 8.8%, while the NASDAQ fell by 33.1%. Investors will watch how stocks perform during the first five days of the year. According to the “Stock Trader’s Almanac,” “the last 47 up First Five Days were followed by full-year gains 39 times.” That equates to an 83% accuracy ratio with an average return of 14%.

Analysts did a good job predicting earnings for 2022. According to Bloomberg, the consensus was for $221 per share in S&P 500 adjusted earnings, and right now, it looks like that estimate will close to the target. But they were way off on the price of the index. The forecast was for the S&P 500 to end the year at 4,950, which was way higher than the 3,821.62 closing price. For 2023, the average estimate is 4,078. So you can probably assume that estimate is the one number the index won’t be close to; only seven times in 23 years of data has the forecast been within 5% of the consensus.

Economists expect a recession in 2023.

Q3 GDP was revised up to 3.2% from 2.9%. According to the Case-Shiller index, home prices fell for the fourth straight month, down by 0.3% in October.

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MARKET RECAP

Stocks finished November with a 5.6% gain and, combined with October, advanced by 14.1%. That, according to analysts at Bank of America, places the rally in the 98th percentile, since 1936, for two-month gains. For the week, the US market was up by 1.22%, and international stocks advanced by 2.30%, bonds rallied by 1.50% on lower interest rates. Powell said during the week that the Fed would raise rates by 1/2 point in December, which had a big part in the market rally.

The average forecast of analysts tracked by Bloomberg for the S&P 500 in 2023 is negative for the first time since 1999. The average projection is for a decline of about 1%. Dating back about 100 years, a market decline two years in a row has only happened four times.

Jobs increased by 263,000 in November, indicating the job market is still strong, despite lots of crosswinds in the economy. The unemployment rate held steady at 3.7%. Average hourly earnings were up by 5.1% year over year. The strong report keeps the Fed on target to raise interest rates by one-half point at the next meeting. But not all is perfect; some companies have started laying off employees, and economists expect higher interest rates to lead to more layoffs. The savings rate is also falling, hurt by higher prices. In October, the personal saving rate was 2.3%, the lowest level since July 2005.

Home prices fell for the third straight month. It was the first time that had happened in almost four years. Prices were 1% lower in September compared to August, and the index is now off by 2.6% from June. However, compared to prices one year earlier, they are still 10.6% higher but down sharply from 12.9% in August.

It was a big Thanksgiving week for brick-and-mortar shoppers. Visits to physical stores were up 17% compared to a 2% increase for online shoppers. Retail sales from Thanksgiving to the following Sunday were up by 10.9%. Cyber Monday sales rose by 5.8%.

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MARKET RECAP

Stocks were down this week, by 0.87% in the US and 0.73% outside the US. The bond index rallied by 0.51%, interest rates fell by 35 basis points on the 10-year.

Producer prices were up by 8% compared to last year, which was lower than 8.4% in September and 11.7% at the March peak.

The spread between the 10-year and the 2-year treasury has reached its highest point since the early 80s at 69 basis points. Such a differential was a precursor to recessions in the past. Meanwhile, Q4 looks on track for solid growth. The Atlanta Fed’s GDPNow model has Q4 growth at 4.2%. There was also a strong retail sales report, up 1.3% in October, the best gain since February and higher than the 1% consensus.

The incredible FTX saga continues. It turns out the financials are a complete mess. John Ray, who took over as CEO and is a restructuring expert, said “never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information.”

There appears to be $900 million in marketable assets against $9 billion of liabilities just before the bankruptcy filing. There were minor cryptocurrencies held on the balance sheet for big amounts that had negligible value. Supposedly Serum was recorded at $2.2 billion but is worth less than $100 million if even that. Furthermore, Serum was a token that FTX created (read Matt Levine’s article at Bloomberg for much more).

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Tracy Alloway from Bloomberg writes about the collapse of FTX, the comparison to the Beanie Baby phenomenon in the ’90s, and how when speculation collapses, all that is left is the utility value, and if there no utility value, that means $0.

Click for the commentary

MARKET RECAP

A big week for stocks worldwide as the inflation report came in slightly less than the consensus estimate. US markets were up by 5.94%, international stocks increased by 6.73%, and bonds rallied by 2.30% on lower interest rates. The October consumer price index was up by 7.7% compared to last year, below the estimate of 8%, and lower than the September print of 8.2%. Investors also will get a split government, as it looks like the House will slide just barely to the Republicans, and the Democrats will keep the Senate. That formula has generally worked out well for investors.

But the Republicans certainly were not happy with that outcome. It was a big underperformance given all the cards stacked up in their favor. At some point, the Republicans have to finally get the message, that Trump has been a disaster for their electoral hopes since he was elected back in 2016. In the 2018 mid-terms, despite a strong economy, the GOP lost 41 house seats. He lost the 2020 presidential election. When it was discovered that he was pressuring state officials in Georgia to turn the vote in his favor, his actions probably cost the GOP the Senate runoff. And then this past week, most of his endorsed candidates failed miserably in elections that would have been winnable with normal, sane candidates. Despite high inflation, high mortgage rates, the threat of a recession, and an unpopular President, it looks like the Democrats will only lose about 11 House seats, and they held on to the Senate, in what should have been a big year for the Republicans.

The Crypto world continues to fall apart. In an incredible turnaround from King of the block (chain) to bankruptcy, FTX disintegrated in five days, and CEO Sam Bankman-Fried, who was doing a good white knight impersonation of JP Morgan from 1907 just a few months ago, went from a net worth of $25 billion to $0 in a flash. So far the crash hasn’t spilled over into the traditional financial markets but time will tell.

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MARKET RECAP

The S&P 500 fell by 3.35% and the Nasdaq was off by 5.65% on fears of more interest rate increases. The Fed doesn’t seem concerned that they might be overdoing it and is intent on increasing rates until inflation breaks, no matter what the damage. Similar to what they did on keeping interest rates at essentially zero for way too long, no matter what the damage.

The market has now retraced about half of the recent market gain.

Fed Chair Jerome Powell said, “We still have some ways to go, and incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected.”

Projected earnings estimates have been dropping at an accelerating rate. The 2023 estimates have fallen by 4.80% over the last 13 weeks. But economic growth for Q4 is looking decent, the Atlanta Fed’s GDP Model has Q4 growth at 3.6%.

Employment increased by 261,000 jobs in October, the lowest amount since December of 2020, but still greater than the pre-pandemic average of 198,000.  The unemployment rate increased to 3.7%. The report shows that the jobs market, while still positive, is beginning to lose momentum. Twitter, Lyft, and Stripe all announced layoffs this week. Average hourly earnings were up by 0.4% in October versus 0.3% in September. But year over year, the increase was 4.7% compared to 5% in October, both off from the 5.6% March high point.

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