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

• S&P 500 +1.45%
• Wage inflation dropped to 4.6% year over year, down from 5.1%. Long-term yields fell, and stocks went up on the news.
• The unemployment rate fell to 3.5%.
• ISM services fell into contractionary territory for the first time since May 2020.
• Earnings estimates for 2023 from bottom-up strategists are for a 4.4% increase, while top-down analysts projected a 2.7% decline.
• Fed minutes indicate they are not satisfied with the progress on inflation.
• The consensus is that we are headed to recession; Larry Summers and Alan Greenspan both said this past week that a recession is a likely outcome.
• It took 15 rounds of voting to elect Kevin McCarthy as the new speaker of the House. A clear indication of the dysfunction of the Republican party. The Republicans were held hostage by the crazies on the far right. They should have used the opportunity to combine with Democrats and elect a speaker more towards the center of the political spectrum to take power away from the extremes on both sides.
• This election is not good news for negotiations on the debt limit later in the year.

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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

US stocks fell slightly, down 0.17%, while international stocks managed a 0.60% advance. Bonds dropped by 1.39%.

Personal spending was up by 0.1% in November, down from 0.9% in October, indicating a slowdown in consumer spending. At the same time, the personal consumption expenditures price index increased by 5.5% year over year in November, down from 6.1% in October. Month to month, the increase was only 0.1%, compared to 0.4% in October. So, inflation seems to be dropping at a decent pace.

Caroline Ellison and Gary Wang, two senior executives at FTX/Alameda, pleaded guilty to fraud and to cooperate in the government’s investigation. In the meantime, ringleader Bankman-Fried was bailed out of jail on a $ 250 million bond.

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MARKET RECAP

Investors were on the retreat this week as the market bounced off the declining trend line dating back to the highs at the beginning of the year, thereby keeping the downtrend in place. US stocks were off by 3.57% and international stocks by 1.49%. According to Refinitiv Lipper, there was a $26.6 billion outflow from the domestic equity mutual and exchange-traded funds over the seven days that ended Wednesday, the biggest weekly outflow since April 2021.

Investors are looking toward Tuesday’s consumer inflation report, which is expected to show that inflation has continued to decelerate. But the producer-price report, released on Friday, came in higher than expected, at +0.3% in November versus the 0.2% estimate.

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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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