Thanksgiving is finally here, but before investors gorge on the turkey, they had a full appetizer of economic data to feast on. The days of 75s look to be getting close to terminating, and markets have become cautiously optimistic the actual terminal rate level is not too far off as well. Therefore, poor data is the whip crème on those expectations.
US markets progressing steadily upwards and onwards today to the higher end of recent rangebound trading, which, until today the S&P had not seen a >1% move in either direction for 7 straight days. In case anyone is counting… SPX closed above 4k and INDU 34k (Dow 34k hats anyone?!)- both key psychological levels as we head deeper into a Thursday Thanksgiving holiday this week.
The turkey isn’t stuffed just yet. Investors were still a bit sore this morning after stocks fell last week, as optimism about cooling inflation was tempered by more hawkish tones from Fed officials. That sentiment spilled into the start of this holiday shortened week, as fears returned over tight COVID restrictions in a Chinese city many thought to be a test case for looser policy.
Winter is coming. Just ask your friends up in Buffalo, New York, as they dig themselves out of four feet of snow! But judging by oil futures, one would never know — crude was down 1.75% on the day and ended the week down 10%. Energy is up 65% y/y, so conversations are beginning to rumble in regard to demand concerns, recessionary fears and hence, some cracks in the pavement for crude/energy.
Markets have come really far, really fast, and the risk of late has been for a pause or reversal. (Foreshadowing inserted). The past 2 days have seen a little of that risk coming to life. Hawkish tones could be heard across the land today as markets were unable to find their footing from the opening bell. This was mostly thanks to the various Fed speakers who graced the media wires.
The errant missile yesterday offered a reason for traders to take profits, especially as US indexes approached some interesting resistance levels. The S&P 500 was hovering around 4000, and Nasdaq around its 100-day (11,511), and many sectors had similar patterns. Even though positioning remains defensive with higher-than-average cash levels, investors had to protect themselves in case a year-end rally takes hold.
Sports are dumb. Ok, let me backtrack a bit. There are certain moments/experiences for a sports fan that will make the proverbial bucket list. When it comes to American football, visiting the “frozen tundra” of Lambeau field in Green Bay qualifies as one. I was able to tick that box this past weekend and with the opponent being my beloved Dallas Cowboys, the emotions for this moment were further elevated.
Monday markets taking the long way home today, closing lower in the red than where we started this am, despite many efforts to emerge higher mid-session. The shakeout following last Thursday’s rumbling CPI print continues with the question mark of a rally boiling under the surface into year-end as the pressure not to underperform the benchmarks will weigh on all when the clock strikes 12 in the New Year.
Yesterday’s momentum continued into today, with markets finishing up strong once again and closing out the best week since June. The optimism was a shampoo effect from yesterday’s inflation number which showed prices are cooling — but for the record the number is still 7.7%! This morning started with University of Michigan consumer sentiment, which came in at 54.7 below estimates (59.5) with one-year inflation matching estimates at 5.1%.
Ok, all better then? Turns out Charlie Brown can kick the football after all. Never has YOY inflation of 7.7% looked so good. In 6 of the last 7 CPI readings, the annual rate came in ABOVE estimates and so investors were reticent for good reason heading into today. It led to some pessimistic positioning as opposed to CPI’s past. So when the under came in and by a fair amount, the pressure valve exploded. Inflation may be cooling but the market was suddenly red hot.